resale price maintenance (RPM) - United Kingdom law

The action of manufacturers in fixing the prices at which their products may be resold by retailers. While RPM does not necessarily imply a price-fixing cartel by manufacturers, it makes such a cartel much easier to enforce. RPM was stopped in the UK by the Restrictive Trade Practices Act (1956) and the Retail Prices Act (1964), except for a few special cases, such as the (now abandoned) Net Book Agreement. Manufacturers can now set only a ‘recommended’ resale price.

Resale price maintenance 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). 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 right to interfere with freedom to make contracts without very good reason.

United Kingdom law

In 1955 in the UK the Monopolies and Mergers Commission's report Collective Discrimination - A Report on Exclusive Dealing , Aggregated Rebates and Other Discriminatory Trade Practices recommended that resale price maintenance when collectively enforced by manufacturers should be made illegal, but individual manufacturers should be allowed to continue the practice. The report was the basis for the Restrictive Trade Practices Act of 1956, this specifically prohibited collective enforcement of resale price maintenance in the UK. In 1964 the Resale Prices Act was passed, which now considered all resale price agreements to be against public interest unless otherwise proved. Park and Sons, 220 U.S. 373 (1911), the United States Supreme Court affirmed a lower court's holding that a massive minimum resale price maintenance scheme was unreasonable and thus offended Section 1 of the Sherman Antitrust Act. The decision rested on the assertion that minimum resale price maintenance is indistinguishable in economic effect from naked horizontal price fixing by a cartel. Subsequent decisions characterized Dr. Miles as holding that minimum resale price maintenance is unlawful "per se" - that is, without regard to its impact on the marketplace or consumers. 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.

In 1968 the Supreme Court extended the "per se" rule against minimum resale price maintenance to maximum resale price maintenance, in Albrecht v. 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.

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 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 desired promotion of the manufacturer's product through local advertising, product demonstrations, and the like. 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.

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. 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.

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. Thus, resale price maintenance is again no longer legal at the present in the United States. 135 (1984)

Robert Pitofsky, Why Dr. Miles Was Right, 8 Regulation 27 (1984)

Benjamin Klein and Kevin M. 265 (1988)

Warren Grimes, Spiff, Polish and Consumer Demand Quality: Vertical Price Restraints Revisited, 80 California Law Review 815 (1992)

Mark Roszkowski, Vertical Maximum Price Fixing: In Defense of Albrecht, 23 Loyola University of Chicago Law Journal, 209 (1992)

John Lopatka and Roger Blair, The Albrecht Rule After Khan: Death Becomes Her, 74 Notre Dame Law Review 123-79 (1998)

Mark Roszkowski, State Oil Company v.