Transcript MAP Pricing Policies

MAP Pricing Policies
Charlie Meyer
November 29, 2012
MAP = Minimum Advertised Pricing
• (also known as resale price maintenance, or
RPM) is the practice of a manufacturer
withholding benefits and/or refusing to do
business with a retailer unless the retailer
complies with a minimum pricing policy.
Price Fixing?
• Generally price fixing is an anti-trust violation
– can be prosecuted as a criminal federal
offense under the Sherman Antitrust Act.
– Criminal prosecutions may only be handled by
the U.S. Department of Justice.
– Severe penalty in a civil case - Private
individuals or organizations may file lawsuits for
triple damages for antitrust violations, and
depending on the law, recover attorneys’ fees
and costs.
Price Fixing
• Vertical – manufacturer to retailers, sometimes
allowed
• Horizontal – among competitors = per se
illegal
Supreme Court
• Leegin Creative Leather Products, Inc. v. PSKS,
Inc., 551 U.S. 877 (2007), reversed the 96-year-old Miles
doctrine that vertical price restraints were illegal per
se replacing the older doctrine with the rule of reason
• The rule distinguishes between restraints with
anticompetitive effect that are harmful to the consumer
and those with procompetitive effect that are in the
consumer’s best interest
MAP Pricing = MSRP
• Exhaustion rule still applies – can’t require a
purchaser to resell a product at a specific
price
• Control over own business still applies – a
company can choose whom to do business
with (absent improper discrimination)
• Manufacturer can choose not to do business
in the future with someone who violates MAP
Pricing
– Can be less severe: loss of preferred pricing,
loss of co-op advertising $$
Value of MAP Pricing
• A single manufacturer’s use of vertical price restraints
tends to eliminate intrabrand price competition;
• Limits “free-rider” retailer – a minimum cost/service online
dealer who gets the sale rather than a full-service dealer
with a showroom that the consumer visited
• Encourages retailers to invest in services or promotional
efforts that aid the manufacturer’s position as against rival
manufacturers.
• Used to protect “premium” products and avoids race-tothe-bottom pricing
Downsides to MAP pricing
• May limit ability of smaller retailers to compete
effectively
– more advertising budget leads to more sales –
e.g. Google ranking
– higher volume can be used to obtain volume
discounts, creating a greater profit margin for
larger retailers
• Consumer does not benefit from lower pricing
• Complaints from resellers about each other
• Monitoring and enforcement costs
Example Provisions:
• Basic policy – Resellers can sell Mfg.’s
products at or above MSRP
• Define affect – applies to all advertising: print,
online, catalogs, etc.
• Exclusions, does not apply to:
– Manufacturer sponsored promotions
– “used products” / returns / refurbished
– Discontinued products
• Applies to advertising, does not limit in-person
deals
• May allow competitive price-matching
Define not-allowed “tricks”
• Can’t indicate a lower price is available
– “Click here for lower price”
– “Add to cart to see price”
– “Call for Lower Price”
• No use of coupons, promotions, free or
discounted products (whether made by ABC
or another manufacturer) if it has the effect of
discounting the advertised price of the
covered product below the MAP, including any
general discounts (e.g., “10% off everything”).
– Require a prominent exclusion if a general discount
Monitoring & Enforcement
• May be monitored by Mfg. or third party
• Penalties for violation?
– Can specify, 1st violation, 2nd violation, 3rd
violation, …
– Can specify if a pattern – 3 w/n 12 months
– Can leave indeterminate, i.e. Mfg. will respond
“as appropriate”