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.

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2 thoughts on “Resale Price Maintenance should be illegal

  1. If it Ain’t Broke, Why Fix It?
    Questions and Answers on Senate Bill S75 and the Issue of Leegin Repeal

    What is Leegin? In the 2007 Supreme Court case Leegin Creative Products, Inc. vs. PSKS, Inc., the Court overturned legal precedent barring Retail Price Maintenance (RPM) agreements between suppliers and dealers. Previously, suppliers could legally stop selling to distributors and retailers who did not follow suggested pricing, but they could not discuss pricing or impose pricing agreements. The court reasoned that small and specialty suppliers could not build strong dealer networks if subjected to discounting on the internet and by large corporate chains.

    What is Leegin repeal? Senate Bill S75 aims to reverse the Court’s decision despite negative consequences for small business and for state and local governments. The bill’s ostensible purpose is to help the consumer, but S75’s real beneficiaries are multi-billion dollar internet discounters and big box store retailers.

    How has the Leegin decision helped small business? The Leegin decision has helped smaller manufacturers cultivate dealer networks by maintaining competitive pricing for their products. These manufacturers rely on specialty shops to sell their unique goods, and specialty shops rely on solid margins to compete with the box stores and with online sellers that don’t charge sales tax.

    Does Leegin help or hurt the consumer? By helping small suppliers and dealers, RPMs also help consumers. Smaller manufacturers drive innovation and variety in the marketplace, and consumers depend on smaller retailers to discover and explain new and innovative products. Consumers suffer when choice is limited to the products of the large-volume manufacturers who supply the big chains. Discounters are a good option for consumers, but they shouldn’t be the only option.

    How has Leegin affected discounters? Not at all. Despite the worst economic downturn since the Great Depression, discounters have only become larger and more widespread since the 2007 Leegin decision. In fact, the discount chain Syms and Filene’s Basement, a proponent of Leegin repeal, recently filed for bankruptcy claiming that discounting was now so widespread that they had lost their competitive advantage. The discounters have won. They do not need yet another advantage over local retail.

    How would repealing Leegin affect state and local governments? S75 would diminish state and local tax revenues by driving sales to the internet where a loophole spares online sellers from charging sales tax on most interstate transactions. Furthermore, replacing local brick and mortar stores with more internet discounters would destroy the Main Street jobs on which state and local economies depend.

  2. Hi,

    It’s also easy for consumers to find the lowest price on something that has a Minimum Resale Price because that is what the MRP is. Also, any two non-competing sellers (on different levels) can make an MRP so it’s not just for manufacturers. Therefore, any offer can have an MRP. Thought, you’d want to write about those things as well.

    Thanks,

    Eugene Kantarovich

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