Resale Price Maintenance - Definition & Meaning
What is Resale Price Maintenance?
Resale price maintenance a price in which the manufacturer and distributor or retail mutually agree that the re-seller of the product will sell it at or above the minimum resale price or at or below maximum resale price. Maximum resale price is the price ceiling and minimum resale price is price floor. A re-seller of the product (retailer or distributor) cannot sell the product above price ceiling or below the price floor.
If any retailer or distributor refuses to do so covertly or overtly, manufacturer has the right to terminate business practice with that retailer or distributor.
Resale price maintenance prevents fierce competition in the market and protect small retailer and distributor who cannot use large scale of sales to gain profit even at low selling price. Minimum resale price saves those distributors who invest in the promotion of the manufacturer’s product by helping them in recovering their cost from consumers.
Manufacturers also support price maintenance, since it ensures that the market is fair for all re-sellers and thus they are getting equal profit on selling the manufacturer’s product. Otherwise, fierce price competition could drive the price and profit down for the retailers and eventually for the manufacturers.
Example
Flipkart Big billion day offer.
Flipkart on this day reduced the prices of many of its products including appliances drastically by 30% to 80% to attract the customers. Many people logged on to flipkart to get lucrative deals on electronics. This led to many complaints from brick and mortar stores to the manufacturers that Flipkart is distorting the prices of many products that they are selling into the market leading to less sales from physical stores. Manufacturing firms held a meeting with Flipkart and warned them that if they continue to distort the price in the market, they will not be providing warranty and other customer support to the products sold from Flipkart. Also, many retailer filed complaints to the commerce ministry and asked the govt. to take some serious steps and formulate some policies for controlling e-commerce predatory pricing.
Hence, this concludes the definition of Resale Price Maintenance along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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