Question

What is a minimum resale price maintenance agreement? How might it reduce competition and when might it be acceptable?

Short answer

Dealers are prohibited from undercutting the suggested price under a minimum resale price maintenance agreement.

Step-by-step solution

Definition

Minimum Resale price maintenance refers broadly to the conduct of sellers' efforts to persuade distributors not to resale their goods at a lower price than the supplier specifies.

Explanation

It's essentially the same as putting a price floor below which a reseller is unable to sell. Because they cooperate together to charge a high price, this eliminates competition and creates a monopoly of the reselling corporations. Dealer competition is limited by a minimum price contract.

Antitrust laws in the United States restrict a variety of anti-competitive behaviors, including RPM, in addition to forbidding mergers. Antitrust regulators scrutinize any tactics where a single corporation controls a significant portion of the market. In such a situation, RPM might be useful.