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What is resale price maintenance?
Resale price maintenance is a form of vertical price control by the manufacturers between the various stages of distribution channel.
Under this method, manufacturers maintain a uniform retail selling price of branded products. They fix and stipulate the prices below which goods should not be resold at any outlet.
Definition of Resale price maintenance
According to Dr.D.M. Nanjundappa,
Resale price maintenance means maintenance of uniform retail selling prices of branded products by their manufacturers who fix and stipulate the prices below which goods should not be resold at any outlet.
Forms of Resale price maintenance
There are two forms of resale price maintenance. They are:
- Collective resale price maintenance; and
- Individual resale price maintenance.
1. Collective resale price maintenance
Under the collective resale price maintenance, the manufacturers of different brands of the same product or a close substitute enter into an agreement to observe retail price maintenance and notify it as a condition to all traders who draw supplies from them. Manufacturers impose sanctions against any trader who reduces the price.
2. Individual resale price maintenance
Under Individual resale price maintenance, there is no strict agreement with regard to resale price control. Retailers can look to alternative sources of supplies. Hence, collective resale maintenance is highly effective.
Advantages of Resale Price Maintenance
1. It eliminates price competition at the retail level, as uniform price will be set.
2. It ensures price stability.
3. It prevents quality deterioration.
4. Fixation of fair selling price restricts excessive profiteering.
5. It promotes fair trade practices.
6. It protects the interest of the consumers. Consumers are saved from shopping around to find out the best seller and enjoy the convenience of getting the goods at the nearest shop.
Cigarettes, tobacco, rubber tyres and tubes, shoes, engineering and electrical goods industries provide the example of resale price maintenance.
Government of India has proclaimed all kinds of resale price maintenance as illegal under section 39 of the Monopolies and Restrictive Trade Practices.
If however, any manufacturer or the wholesaler feels that resale price maintenance is essential in the case of his product, he has to apply to the Secretary, MRPT Commission for specific order of exemption.
Disadvantages of Resale Price Maintenance
The following are some of the demerits of Resale Price Maintenance.
1. It kills competition.
2. It may keep the price higher.
3. It is associated with restricted trade practices and price discrimination. Hence this was declared illegal under MRPT Act.