Resale Price Maintenance should be illegal

By Sally Greenberg, NCL Executive Director

I recently  received a call from a staffer for Congressman Hank Johnson (D-GA) who has been a leader in opposing a practice that organizations like ours regard as very anti-consumer: “Resale Price Maintenance (RPM).” RPM is the practice whereby a manufacturer and its distributors agree that the latter will sell the former’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 the price set by the retailer, either openly or covertly, the manufacturer may stop doing business with it.

In 2009 five groups – NCL, Consumers Union, Consumer Federation of America, American Antitrust Institute and US PIRG – asked Congress to overturn the 2007 Supreme Court case, Leegin Creative Leather Products, Inc vs. PSKS, Inc. that made RPM legal. RPM used to be “per se” illegal under the antitrust laws but this case overturned 100 years of precedent.

Resale price maintenance prevents resellers from competing too fiercely on price. According to Wikipedia, RPM exists because: “ resellers worry it could drive down profits for themselves as well as the manufacturer. Some argue that the manufacturer may do this because it wishes to keep resellers profitable, and 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 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.”

The 2009 consumer letter to Congress said that “it is unequivocal that RPM agreements raise consumer prices, prevent efficient retailers from passing on the benefits of their lower costs to consumers, and tend to retard the development of new forms of retailing. At the same time, the purported benefits to consumers of RPM agreements are dubious and even if such benefits exist, they can be achieved by less restrictive business practices.”

These words are true today, as they were in 2009 when we wrote the original letter. We urge members of Congress to overturn this unfortunate Supreme Court decision and applaud Congressman Hank Johnson for renewing his efforts to make RPM illegal once again.