Question

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

Short answer

Restrictive practice to curb competition.

Step-by-step solution

Step1. Introduction

Minimum resale price maintenance agreement is generally made between a product manufacturer and group of dealers who finally sell to the end consumers.

Through such agreements, manufacturers bind dealers to sell the products at a certain minimum price.

Step2. Explanation

It is a restrictive practice which aims at reducing competition in the market by curbing the competition among dealers by binding them with a minimum selling price. Antitrust laws hence rule out against such practices.

Step3. Implications

Although legally, manufacturers are allowed to suggest prices but can not enter in an agreement. The manufacturers may also choose not to sell to those dealers who constantly undercut the prices in the markets.

It might be acceptable when such agreements aim at inducing competition between the dealers.