Measures taken by manufacturers or distributors to control the resale prices of their products (i.e., the prices charged by businesses that resell them). Such measures have been applied to a limited array of goods, including pharmaceuticals, books, photographic supplies, and liquor. Resale price maintenance first began to be employed in the 1880s, reflecting the success of brand promotion and the resulting increase in competition among retailers. It became especially common in the U.S. but declined after World War II. It is prohibited in some countries. The complexity of marketing channels in industrialized countries makes it increasingly difficult for manufacturers to establish and enforce a single price or even a minimum price for their goods. Seealso fair trade law.
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In relation to competition, Articles 81 and 82 of the EC Treaty are paramount over all member states' national laws relating to competition. The ECJ and the Commission have both held that Resale Price Maintenance is generally prohibited. UK law must apply this interpretation when dealing with inter member-state agreements between undertakings.
During the Great Depression in the 1930s, a large number of U.S. states began passing fair trade laws. These were intended to protect independent retailers from the price-cutting competition of large chain stores by authorizing resale price maintenance. Since these laws allowed vertical price fixing, they directly conflicted with the Sherman Antitrust Act, and Congress had to carve out a special exception for them with the Miller-Tydings Act of 1937. This special exception was expanded in 1952 by the McGuire Act (which overruled a 1951 Supreme Court decision that gave a narrower reading of the Miller-Tydings Act). The fair trade laws became widely unpopular after World War II and so the Miller-Tydings Act and the McGuire Act were repealed by the Consumer Goods Pricing Act of 1975.
In 1968 the Supreme Court extended the "per se" rule against minimum resale price maintenance to maximum resale price maintenance, in Albrecht v. Herald Co., . The Court opined that such contracts always limited the freedom of dealers to price as they wished. The Court also opined that the practice "may" channel distribution through a few large, efficient dealers, prevent dealers from offering essential services, and that the "maximum" price could instead become a minimum price.
In 1997, the Supreme Court overruled Albrecht, in State Oil v. Khan, .
Several decades after Dr Miles, scholars began to question the assertion that minimum resale price maintenance, a vertical restraint, was the economic equivalent of a naked horizontal cartel. In 1960, Lester G. Telser, an economist at the University of Chicago, argued that manufacturers could employ minimum resale price maintenance as a tool to ensure that dealers engaged in the desired promotion of a manufacturer's product through local advertising, product demonstrations, and the like. Without such contractual restraints, Telser said, no frills distributors might "free ride" on the promotional efforts of full service distributors, thereby undermining the incentives of full service dealers to expend resources on promotion. Six years later, Robert Bork reiterated and expanded upon Telser's argument, contending that resale price maintenance was simply one form of contractual integration, analogous to complete vertical integration, that could overcome a failure in the market for distributional services. Bork also argued that non-price vertical restraints, such as exclusive territories, could achieve the same results.
Some scholars subsequently questioned Telser's theory, arguing that, by itself, minimum retail price maintenance cannot ensure that dealers will engage in an optimal level of promotion. These scholars argued that minimum price served as a contract enforcement mechanism, guaranteeing compliant dealers a stream of rents if they adhered to a manufacturer's promotional directives. However, some contended that the promotional efforts resulting from minimum price and other vertical restraints could actually reduce economic welfare by encouraging undue product differentiation and the resulting market power. Others claimed that manufacturers could achieve the same objective by less restrictive alternatives.
In 1978, the U.S. Supreme Court held that non-price vertical restraints, such as vertically imposed exclusive territories, were to be analyzed under a fact-based "rule of reason." In so doing, the Court embraced the logic of Bork and Telser as applied to such restraints, opining that, in a "purely competitive situation," dealers might free ride on each others' promotional efforts.
In 1980, the U.S. Supreme Court held that the repeal of Miller-Tydings implied that the Sherman Act's complete ban of vertical price fixing was again effective, and that even the 21st Amendment could not shield California's liquor resale price maintenance regime from the reach of the Sherman Act. California Liquor Dealers v. Midcal Aluminum, . Thus resale price maintenance was again no longer legal in the United States.
On June 28, 2007, the Supreme Court overruled Dr. Miles, holding that such vertical price restraints are not per se unlawful but, rather, must be judged under the "rule of reason." Leegin Creative Leather Products, Inc. v. PSKS, Inc., Slip Op. No. 06–480 (Decided June 28, 2007).
Living with "Leegin": The Demise Of "Dr. Miles" And The "Per Se" Rule Against Minimum Resale Price Maintenance.(Leegin Creative Leather Products, Inc. v. PSKS, Inc.)
Jul 08, 2007; Overruling a nearly 100 year-old precedent, in a 5-4 decision, the Supreme Court has ruled that agreements setting minimum retail...