Suggested pricing methods may conflict with competition theory, as it allows prices to be set higher than would otherwise be the case, potentially negatively impacting consumers. However, resale price maintenance goes further than this and is illegal in many regions.
Much of the time, stores charge less than the suggested retail price, depending upon the actual wholesale cost of each item, usually purchased in bulk from the manufacturer, or in smaller quantities through a distributor.
Suggested prices can also be manipulated to be unreasonably high, allowing retailers to use deceptive advertising by showing the excessive price and then their actual selling price, implying to customers that they are getting a bargain.
Game shows have long made use of suggested retail prices both as a game element, in which the contestant must determine the retail price of an item, or in valuing their prizes.
Currently, the MSRP, or "sticker price" — the price of a vehicle as labeled by the manufacturer, is clearly labeled on the windows of all new vehicles. This is substantially different from the actual price paid to the manufacturer by the dealer.
In Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 127 S. Ct. 2705 (2007), the Supreme Court considered whether federal antitrust law established per se ban on minimum resale price agreements and, instead, allow resale price maintenance agreements to be judged by the rule of reason, the usual standard applied to determine if there is a violation of section 1 of the Sherman Act. In holding that vertical price restraints should be judged by the rule of reason, the Court overruled Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911).
Because the rule of reason applies, minimum RPM agreements may still be unlawful. In fact, in Leegin, the Court identified at least two ways in which a purely vertical minimum RPM agreement might be illegal. First, “[a] dominant retailer ... might request resale price maintenance to forestall innovation in distribution that decreases costs. A manufacturer might consider it has little choice but to accommodate the retailer's demands for vertical price restraints if the manufacturer believes it needs access to the retailer's distribution network." Second, “[a] manufacturer with market power ... might use resale price maintenance to give retailers an incentive not to sell the products of smaller rivals or new entrants.”
In both of these examples, an economically powerful firm uses minimum the RPM agreement to exclude or raise entry barriers for its competition.
In addition, federal law is not the only source of antitrust claims as almost all of the states have their own antitrust laws. Leegin dealt only with a claim arising under Section 1 of the Sherman Act.
When ads and prices just don't add up: if a company refuses to sell a product at the advertised price, you don't have a lot of options for recourse. Here are your best bets. (opinions).
May 01, 2003; AS SOON AS HE SPOTTED THE ad for a $159 2.4GHz Pentium 4 processor at Newegg.com, Robert Clodfelter reached for his wallet. When...