Resale price maintenance

Resale price maintenance (RPM) or, occasionally, retail price maintenance is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer's product at certain prices (resale price maintenance), at or above a price floor (minimum resale price maintenance) or at or below a price ceiling (maximum resale price maintenance). If a reseller refuses to maintain prices, either openly or covertly (see grey market), the manufacturer may stop doing business with it. Resale price maintenance is illegal in many jurisdictions. Resale price maintenance prevents resellers from competing too fiercely on price, especially with regard to fungible goods. Otherwise, resellers worry it could drive down profits for themselves as well as for the manufacturer. Some argue that the manufacturer may do this because it wishes to keep resellers profitable, thus keeping the manufacturer profitable. Others contend that minimum resale price maintenance, for instance, overcomes a failure in the market for distributional services by ensuring that distributors who invest in promoting the manufacturer's product are able to recoup the additional costs of such promotion in the price that they charge consumers. Some manufacturers also defend resale price maintenance by saying it ensures fair returns, both for manufacturer and reseller and that governments do not have the right to interfere with freedom to make contracts without a very good reason. United Kingdom competition law In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, an English contract law case, tyre manufacturer Dunlop had signed an agreement with a dealer to get paid £5 per tyre in liquidated damages if the product was sold below the list price (other than to motor traders). The House of Lords held that Dunlop could not enforce the agreement. However, this had nothing to do with the legality of resale price maintenance clauses, which was not in any question at the time.