Resale Price Maintenance 2

Resale Price Maintenance 2

Resale Price Maintenance R.p.m. limits price competition between retailers. A retailer providing the sane set-vices as competitors cannot undercut them in order to expand, even though his costs may be lower. A retailer providing fewer services than competitors cannot charge correspondingly lower prices. And a retailer who is newly established or poorly located cannot give consumers the inducement of a lower price to patronize him. The result is that competition is concentrated on services or other attractions: credit, delivery, wide assortment of stock, more staff, better premises, advertising, perhaps trading stamps, etc. Price competition is therefore confined to non-maintained goods, but they are few among the products sold by such retailers as chemists, sellers and tobacconists.

Price maintenance normally raises distributors' gross profit margins and, as this is seldom offset by a proportionate fall in the volume of sales, makes the total of gross profits in distribution larger than it would be if there were competition in price. This does not mean that the rate of return on capital invested or managerial earnings are higher. More shops tend to be opened and they offer more services, so that the net return on capital is no higher than elsewhere; but the volume of resources engaged in retailing is larger than it otherwise would be.

Compared with the pre-war position in Britain, the proportion of personal consumer outlays spent on price-maintained articles appears to be declining and may now be less than one-quarter. The abolition of collective r.p.m. has weakened the system. If one manufacturer stops maintaining his prices his rivals often have to follow suit. A combination of distributors threatening to boycott a manufacturer who failed to maintain his prices would have to register and be examined by the Restrictive Practices Court. On the other hand the outlawing of collective enforcement and the power of an individual firm to enforce r.p.m. in the courts may have stimulated 'integration forward' to the control of retail outlets by firms that regarded fixed uniform prices as desirable in marketing their products.

In 2004 the power of an individual firm to enforce r.p.m. was curtailed in Britain. In Canada and some U.S.A. states price maintenance, individual as well as collective, is illegal.

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