Resale Price Management

8/12/2019 Resale Price Management

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A presentation by Group 6, Section-B

Presented By:

Nikhil Saxena

Palak Hasija

Paras Sharma

Paras SharmaPaavan Daxini


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Vertical Restraints

What are vertical restraints?

Restraints on agreements of concerted practices between

individuals or firms at different levels of production and

distribution Forms of vertical restraints:

Exclusive territories or distribution arrangement

Exclusive dealing

Full-line forcing

Franchising

Single branding agreements

Resale Price Maintenance


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Resale Price Maintenance Agreement between manufacturer and distributor

Distributor sells manufacturers products at certain

prices Manufacturer may stop doing business with the

distributor

When is an agreement RPM & anti-competitive?

The Navman: Resale Price MaintenanceControversy


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Direct Price Management v/s RPM Manufacturer owns a chain of retail stores and

stipulates the price at which each of these must sell hisproducts. EXAMPLE-footwear industry.

Similarly, there are agency arrangements where thewholesaler or distributor may be an agent of themanufacturer and he is selling on behalf of the

manufacturer. Such cases do not fall within the ambit of RPM as the

ownership of the goods remains with themanufacturer.


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Direct Price Management v/s RPM The resale prices are enforced by virtue of the

suppliers power to withhold supplies of the goods.

Therefore, RPM is seen as a technique to prevent pricecompetition among manufacturers and distributors.

This is justified on the ground that in conditions ofshortages, it would prevent arbitrary price rise and

curb the tendency of profiteering on the part ofwholesalers and retailers.


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Forms of Resale Price Maintenance Fixed price - when the goods are to be sold only at that

price and no departure is permitted

Minimum resale price - when the goods shall not besold below that price and if it is not followed by thedealer, the supplies are stopped and he may even be

liable to pay compensation

Maximum resale price - when the goods shall not besold beyond the price decided.


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Resale Price Maintenance -Advantages

That it guarantees an adequate margin of profitbetween wholesalers and retailers and, thus, leads to a

large number of outlets which benefits the consumers

It enables the small traders and shop keepers to service

the competition of big merchants and powerful chainstores

It prevents the practice of loss leader


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Issues in relation to RPM Appreciable Adverse Effect on Competition(AAEC)

How to determine AAEC?

The determining factors include:

creation of barriers to new entrants in the market driving existing competitors out of the market

foreclosure of competition by hindering entryinto the market

accrual of benefits to consumers

improvements in production or distribution ofgoods or provision of services


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Issues in relation to RPMProduction Chain The production chainmay spread from gathering of

raw materials to processing and creating the finalproduct, distributing and selling the product.

Each step of Production Chain adds value to theproduct.

Distribution Chain involves transporting finished

goods to consumers. Two categories of Distribution Chain:

Direct Channel

Indirect Channel


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Issues in relation to RPMMarket Power Firms with low Market Power engaging in RPM will

not affect the competition significantly.

In modern times, Vertical Restraints are treated moreleniently than Horizontal Restraints depending uponthe firm's Market Power.

Vertical Restraints can perform pro-competition

functions also. Distinction between Market Power and Dominant

Position.

Examples: Wal-Mart and Apple exercise Market

Power but aren't considered Dominant in the Market.


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Issues in relation to RPMDetermining Relevant Market According to sec 2(r) it is the area of effective

competition within which the defendant operates.

Includes:o Identifying products/services offered by an enterprise

o In a given geographical area

No clear law to define Relevant Market for all the

products. Depends on the context of the situation. Examined

by enforcing authority.

DLF controversy.


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Conclusion

Objective of the Anti-trust law is to preserve andpromote competition.

Earlier the Law was very strict regarding VerticalConstraints.

Currently (2002) it has been identified that VerticalConstraints, specially RPMs, can affect competitions

in both -ve and +ve manner. Poses complex legal/ethical issues.

The enforcing authority (CCI) has to strike a balancebetween the harms and the benefits of RPMs.


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Thank You

Documents

Resale Price Management