Resale price maintenance (“RPM”) agreements refer to contractual arrangements between manufacturers or suppliers and their retailers or distributors, in which the parties agree on the minimum or fixed prices at which the products will be resold to consumers. These agreements essentially set a floor price below which the retailers cannot sell the products. RPM agreements are designed to maintain price levels for products in the distribution chain and can have various forms. The two main types of RPM agreements are:
Minimum Resale Price Maintenance (“MRPM”): Under an MRPM agreement, the manufacturer or supplier sets a minimum price below which the retailer cannot sell the product. Retailers are prohibited from offering discounts or selling below the specified minimum price. This ensures that all retailers sell the product at a consistent price, preventing aggressive price competition and protecting the brand image and profitability.
Fixed Resale Price Maintenance (FRPM): In an FRPM agreement, the manufacturer or supplier directly fixes the resale price for the retailers. The retailers are obligated to sell the product at the specified fixed price and have no discretion to deviate from it. This type of agreement leaves no room for price competition among retailers and ensures consistent pricing across the distribution network.
Resale price maintenance agreements can have both legal and economic implications. From a legal perspective, RPM agreements may raise antitrust concerns, particularly in jurisdictions where they are closely scrutinized. Such agreements can be seen as anti-competitive because they potentially restrict price competition among retailers and limit consumer choice. However, the legality of RPM agreements may vary depending on the jurisdiction and the specific circumstances.
“Early in the 20th century RPM agreements were per se illegal under federal antitrust law. That changed in 1997 when U.S. Supreme Court in State Oil v. Khan proclaimed that per se rule no longer applies to agreements setting maximum resale price and that they should be analyzed under the rule of reason. A couple of years later in Leegin Creative Leather Products Inc. v. PSKS, Inc., U.S. Supreme Court also removed per se ban from minimum resale price arrangements making them subject to the rule of reason, as well.” However, states have their own antitrust laws. (LII)
Economically, proponents of RPM argue that these agreements can benefit manufacturers and suppliers by maintaining brand value, preventing price erosion, and encouraging investment in quality and customer service. They argue that these benefits trickle down to consumers through improved product quality and availability. Critics, on the other hand, argue that RPM agreements can lead to higher prices for consumers, reduce competition, and limit consumer welfare.