Before a product can get into the hands of a consumer, there are many background steps that first take place. A supplier or manufacturer will design and produce goods which are then distributed (often by a third party known as a distributor) amongst resellers. Finally, retailers sell goods to consumers for a price that they set. It may be the case that a supplier wants to set a minimum resale price, whether that be to preserve the brand integrity and exclusiveness or perhaps reduce competitiveness between retailers, creating a balanced playing field. In this article we examine whether it is legal to set a minimum resale price.
Retail price maintenance
The Competition and Consumer Act 2010 (Cth) prohibits the practice of resale price maintenance (RPM). At section 96, the legislation identifies what conduct will constitute RPM. It details that a supplier cannot sanction a reseller if it does not want to set prices in accordance with what the supplier requests. Examples of sanctions include a threat to stop supplying products to the reseller or a cancellation of all business with the reseller.
Examples of retail price maintenance
The legislation is deliberately broad, and therefore a ‘specified price’ as set by the supplier can mean a fixed price, a request not to sell below a minimum price, a request not to discount goods, or a requirement that the reseller comply with the recommended retail price (RRP). If a supplier asks a reseller to engage in any of this conduct, the reseller does not need to comply, and cannot suffer from sanctions.
If a supplier were to set a minimum resale price, this would be an example of RPM. The legislation and the Australian Competition and Consumer Commission (ACCC) operate to encourage competition between retailers.
Loss leader selling
A supplier can sanction resellers that use loss leader selling tactics. Loss leader selling involves selling heavily discounted goods or deliberately selling below cost price to attract customers or promote business. However, where a supplier has previously agreed to supply goods for the explicit purpose of loss leader selling, then sanctions will not apply.
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Get startedRecommended resale price
We have all heard the term ‘recommended resale price’ (RRP), but how does the legality of an RRP fair against competition and consumer legislation? A supplier has every right to recommend a retail price that resellers may like to use. This assists a business in determining the profit margin they can earn balanced against the cost price. An RRP can also assist in ascertaining competitor pricing. A supplier must not enforce an RRP because that will constitute retail price maintenance. It will usually be permissible for a supplier to also set a maximum retail price.
Wrapping it up
Minimum resale prices and retail price maintenance are prohibited under federal competition and consumer legislation. Therefore, a supplier cannot set prices amongst resellers. The Australian Competition and Consumer Commission has the power to investigate any breaches of this legislation. Suppliers found to be engaging in retail price maintenance may face penalties. If ever in doubt, you can always speak to a commercial lawyer.
