Understanding MAP Pricing: A Guide for Retailers

1. MAP Pricing Policies Charlie Meyer November 29, 2012

2. MAP = Minimum Advertised Pricing • (also known as resale price maintenance, or RPM) is the practice of a manufacturer withholding benefits and/or refusing to do business with a retailer unless the retailer complies with a minimum pricing policy.

3. Price Fixing? • Generally price fixing is an anti-trust violation • can be prosecuted as a criminal federal offense under the Sherman Antitrust Act. • Criminal prosecutions may only be handled by the U.S. Department of Justice. • Severe penalty in a civil case - Private individuals or organizations may file lawsuits for triple damages for antitrust violations, and depending on the law, recover attorneys’ fees and costs.

4. Price Fixing • Vertical – manufacturer to retailers, sometimes allowed • Horizontal – among competitors = per se illegal

5. Supreme Court • Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), reversed the 96-year-old Miles doctrine that vertical price restraints were illegal per se replacing the older doctrine with the rule of reason • The rule distinguishes between restraints with anticompetitive effect that are harmful to the consumer and those with procompetitive effect that are in the consumer’s best interest

6. MAP Pricing = MSRP • Exhaustion rule still applies – can’t require a purchaser to resell a product at a specific price • Control over own business still applies – a company can choose whom to do business with (absent improper discrimination) • Manufacturer can choose not to do business in the future with someone who violates MAP Pricing • Can be less severe: loss of preferred pricing, loss of co-op advertising $$

7. Value of MAP Pricing • A single manufacturer’s use of vertical price restraints tends to eliminate intrabrand price competition; • Limits “free-rider” retailer – a minimum cost/service online dealer who gets the sale rather than a full-service dealer with a showroom that the consumer visited • Encourages retailers to invest in services or promotional efforts that aid the manufacturer’s position as against rival manufacturers. • Used to protect “premium” products and avoids race-to-the-bottom pricing

8. Downsides to MAP pricing • May limit ability of smaller retailers to compete effectively • more advertising budget leads to more sales – e.g. Google ranking • higher volume can be used to obtain volume discounts, creating a greater profit margin for larger retailers • Consumer does not benefit from lower pricing • Complaints from resellers about each other • Monitoring and enforcement costs

9. Example Provisions: • Basic policy – Resellers can sell Mfg.’s products at or above MSRP • Define affect – applies to all advertising: print, online, catalogs, etc. • Exclusions, does not apply to: • Manufacturer sponsored promotions • “used products” / returns / refurbished • Discontinued products • Applies to advertising, does not limit in-person deals • May allow competitive price-matching

10. Define not-allowed “tricks” • Can’t indicate a lower price is available • “Click here for lower price” • “Add to cart to see price” • “Call for Lower Price” • No use of coupons, promotions, free or discounted products (whether made by ABC or another manufacturer) if it has the effect of discounting the advertised price of the covered product below the MAP, including any general discounts (e.g., “10% off everything”). • Require a prominent exclusion if a general discount

11. Monitoring & Enforcement • May be monitored by Mfg. or third party • Penalties for violation? • Can specify, 1st violation, 2nd violation, 3rd violation, … • Can specify if a pattern – 3 w/n 12 months • Can leave indeterminate, i.e. Mfg. will respond “as appropriate”