When my dishwasher broke recently, I researched and chose a new model—only to find that every major retailer was offering it at the same price. The same happened with a pair of brand name running shoes. How do manufacturers ensure such uniform pricing across retailers and resellers? The answer lies in resale price maintenance, a set of strategies and policies that manufacturers use to influence the prices at which their products are sold.
Resale Price Maintenance Strategies
Manufacturers can influence the resale prices of their products and maintain consistent pricing in three key ways:
Resale Price Maintenance Agreements
A resale price maintenance (RPM) agreement is an agreement between a manufacturer and its resellers to sell the manufacturer's products at a minimum resale price.
Historically, these agreements have been considered "per se" illegal under the Sherman Act1 as an unreasonable restraint on trade. However, in 2007, the U.S. Supreme Court found that vertical price restraints, such as RPM agreements, are to be analyzed under the "rule of reason."2 Under the "rule of reason" standard, the pro-competitive benefits of RPM agreements are weighed against any anticompetitive consequences.
The pro-competitive benefits of RPM agreements include:
- Increasing inter-brand competition (competition between different brands of a product as opposed to competition between retailers selling the same brand);
- Protecting a manufacturer's brand or image;
- Maintaining reseller margins; and
- Encouraging retailers to provide higher levels of customer service (e.g., delivery, installation and haul away services) and make investments in displays and showrooms.
It is important to note that some states (including California, Maryland and New York) have their own antitrust laws that still treat RPM agreements as "per se" illegal. Also, the courts may rule differently on whether an agreement is pro-competitive or anticompetitive. Because of these risks, manufacturers tend to prefer unilateral pricing policies over RPM agreements
Unilateral Minimum Price Policies
A unilateral minimum resale price policy3 allows manufacturers to set a pricing standard for its products without forming agreements with retailers. Such a policy generally does not violate antitrust laws since there is no agreement between the manufacturer and the reseller.
The key elements of a minimum resale price policy are:
- It must be unilateral – clearly stating that the policy is not an agreement (it often states that resellers are free to decide whether to follow the policy).
- It must be consistently enforced – applicable to all resellers, including online and brick-and-mortar stores, and enforced consistently against any reseller who fails to comply.
- No discussion or negotiation – any back and forth discussions between the manufacturer and reseller regarding policy enforcement would indicate that a unilateral policy is really an agreement.
Minimum Advertised Price (MAP) Policies
MAPS or internet minimum advertised price policies (IMAPS) are policies that limit how low retailers can advertise a product's price but not control the actual selling price.
For example, if you see a "Go to Cart to See Price" message while shopping online, the retailer is likely following an IMAP policy. They are not advertising a price below the IMAP, but may be selling it for less. In a brick-and-mortar store, MAPS do not restrict in-store displays.
The key elements of a MAP include:
- Like minimum price policies, MAPs also must be unilateral.
- They apply to advertising only, not actual in-store or checkout prices.
- They must be enforced uniformly, applicable to all reseller and across all sales channels.
Key Takeaways for Manufacturers
If you are a product manufacturer selling through resellers or retailers, maintaining consistent resale prices is critical for protecting brand identity, preserving retailer relationships, and minimizing legal risks.
To ensure such consistency, manufacturers may wish to adopt the following best practices:
- Use MAP, IMAP or unilateral pricing policies instead of formal pricing agreements.
- Ensure policies are unilateral—no back-and-forth negotiations with retailers.
- Train employees to avoid discussions that could turn a policy into an agreement.
- Enforce policies consistently across all online and offline sales channels.
Footnotes
1 The Sherman Act was passed by Congress in 1890 and is recognized as the first antitrust law in the U.S.
2 Leegin Creative Leather Products, Inc. v. PSKS, Inc, 551 U.S. 877 (2007).
3 This approach is rooted in a 1919 U.S. Supreme Court case (United States v. Colgate & Co., 250 U.S. 300) which held that a manufacturer can choose what retailers it wants to do business with based on their adherence to unilateral policies adopted by the manufacturer.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
