It seems more and more of my day is spent responding to manufacturer “Minimum Advertised Pricing” policies. Spend any time in retail and you’ve likely had one impact your day whether you were aware of it or not. A clear definition is a bit difficult to come by but I did find buried in Wikipedia’s Suggested Retail Price article a good synopsis:
Minimum advertised price or MAP (also known as resale price maintenance, or RPM) is the practice of restricting pricing at the consumer level. Price fixing agreements are illegal in many countries when members and terms in the agreement match predefined legal criteria.
Fixed pricing established between a distributor and seller or between two or more sellers may violate antitrust laws in the United States.
In Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 127 S. Ct. 2705 (2007), the Supreme Court considered whether federal antitrust law established per se ban on minimum resale price agreements and, instead, allow resale price maintenance agreements to be judged by the rule of reason, the usual standard applied to determine if there is a violation of section 1 of the Sherman Act. In holding that vertical price restraints should be judged by the rule of reason, the Court overruled Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911).
Because the rule of reason applies, minimum RPM agreements may still be unlawful. In fact, in Leegin, the Court identified at least two ways in which a purely vertical minimum RPM agreement might be illegal. First, “[a] dominant retailer ... might request resale price maintenance to forestall innovation in distribution that decreases costs. A manufacturer might consider it has little choice but to accommodate the retailer's demands for vertical price restraints if the manufacturer believes it needs access to the retailer's distribution network." Second, “[a] manufacturer with market power ... might use resale price maintenance to give retailers an incentive not to sell the products of smaller rivals or new entrants.”
In both of these examples, an economically powerful firm uses minimum the RPM agreement to exclude or raise entry barriers for its competition.
In addition, federal law is not the only source of antitrust claims as almost all of the states have their own antitrust laws. Leegin dealt only with a claim arising under Section 1 of the Sherman Act.
You might be saying to yourself, good synopsis? Trust me that’s exactly the same thing I’ve been saying to myself and no matter how much I read, I’ve gained little clarity. In short what I’ve got from “vertical price restraints should be judged by the rule of reason” is that every one of these policies mailed to me unexpectedly, from manufacturers I may or may not have any direct relationship with, must be deciphered and navigated uniquely. Some kind of string like this generally follows in exasperation. The very little guys the manufacturers are “intending” to protect from the big box by creating a level playing field are suffering under the weight.
At first glance I’d hoped I’d found an advocate in Monica Steinisch’s article, Savvy Shoppers Know “Minimum Advertised Price” Isn’t Always the Bottom Line. The key to my frustration can be found in her second opening paragraph, “A manufacturer-imposed policy called "minimum advertised pricing" (MAP) can tie retailers' hands when it comes to promoting lower prices on some products.” However, Steinisch goes on to champion the benefits of MAP for the manufacturers and retailers, “By imposing a minimum advertised price, manufacturers help the little guys compete.” Her primary example is that of the local shop’s ability to make the margin necessary to provide that one-on-one customer experience while maintaining their ability to cover the higher overhead of a store front. Wait, the little guys buy with higher multipliers than the big box and both have the overhead of a store front, so how did the little guy come out ahead? The comparison I believe she was attempting to make is that of the little guy (Brick-and-Mortar) vs. internet sellers (No Brick-and-Mortar) which she moves on to talk about (an incredible oversimplification of internet sellers). I wonder if she’s ever paid a Google AdWords campaign.
I find the experience to be more that MAP enforces the status quo. The manufacturer lazily retains an inflated price (more traditionally managed by manufacturer production levels), the big box continues to be the big box (following MAP if the manufacturer successfully implements the policy, not if they don’t). What manufacturer isn’t going to feed the big box? And the little guy continues to work on smaller margins, all at the customer’s expense.
Steinisch does go on to provide some excellent consumer recommendations for finding that bargain despite MAP. So why am I commenting on an article published in 2005, because nothing has changed! If anything the aggressiveness of MAP policies has heightened.