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Sample Essay on Resale Price Maintenance

Resale Price Maintenance

Resale price maintenance is described as the practice used by manufacturers to set minimum prices for retailers at which they can sell their products. The distributors and manufacturer agree the distributors agree the distributors will sell the products at a specific price (retail price) or above the floor price (minimum resale) or below the ceiling price (maximum resale).

If the reseller refuses to uphold the provided prices whether covertly or openly, the manufacturer has the right to stop the business deal. Resale price maintenance ensures that resellers don’t compete too intensely on price. This is especially true in cases of fungible goods. Otherwise, the retailers worry it might drive their own profits down as well as those of the manufacturer.

Some experts argue the manufacturer might set the resale price in order to keep the retailers profitable and as such, keep the manufacturer profitable as well. There are others who argue that the minimum resale price maintenance for example helps overcome market failure for distribution services through ensuring distributors who make investment in promoting the product of the manufacturer product are in a position to recoup additional costs like promotion in what they charge their consumers.

Often, manufacturers tend to defend the practice of resale price maintenance by arguing it helps ensure fair returns not only for the manufacturer but the reseller. They also claim it helps ensure governments don’t get the right to interfere with their freedom of making contracts without good reason. There are instances when governments are seen to uphold price control. When there is a minimum resale price set on any product it becomes easier for consumers to buy or find that particular product at the lowest possible price.

It is this aspect that makes shopping easier. There are also instances when 2 non-competing sellers set a minimum resale price on any offer and not just on manufacturers’ product. The logic behind resale price maintenance is as follows:

  • It aids in keeping retailers more profitable. Manufacturers also like this as it makes them feel if they ensure the retailers are profitable, the retailers will keep selling the goods.
  • It helps prevent damage price related wars with retailers who want to under-cut one another in the race to reach the bottom.
  • It helps offer support to small retailers unable to buy in bulk so they can remain profitable. For instance small bookshops can benefit from resale price maintenance on books.
  • Makes it possible for manufacturers to reward shops that promote their products by advertising. It makes it possible for manufacturers to make an investment in future products.

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