Price fixing has a deservedly negative connotation, and often the term is misused in the context of minimum advertised price (MAP), and other manufacturer price policies.
Here’s the lowdown on how they differ, and why MAP is actually beneficial to all parties involved, not just brands.
What is price fixing?
According to the Federal Trade Commission (FTC), “Price fixing is an agreement among competitors that raises, lowers, or stabilizes prices or competitive terms. Generally, the antitrust laws require that each company establish prices and other terms on its own, without agreeing with a competitor. When consumers make choices about what products and services to buy, they expect that the price has been determined freely on the basis of supply and demand, not by an agreement among competitors.”
This type of horizontal price fixing restricts competition, which often results in higher prices for consumers, and the inability for smaller competitors to compete.
Due to the larger economic implications, price fixing agreements are illegal, as determined by the U.S. Supreme Court. A business should never discuss pricing or even appear to discuss pricing with competitors.
This is very different from a MAP policy, which is an agreement between manufacturers and distributors or retailers, not between competitors.
What is MAP?
According to the FTC, “If a manufacturer, on its own, adopts a policy regarding a desired level of prices, the law allows the manufacturer to deal only with retailers who agree to that policy. A manufacturer also may stop dealing with a retailer that does not follow its resale price policy. That is, a manufacturer can implement a dealer policy on a ‘take it or leave it’ basis.”
A MAP policy is an agreement in which a manufacturer sets advertising price limits for distributors and resellers. However, it does not stop a retailer from actually selling below a minimum price. That would fall under minimum resale price (RPM) maintenance, or a vertical price restriction, which is in somewhat murkier legal territory and may vary from state to state in the United States, so be careful to write a policy that won’t be misinterpreted as such.
MAP policies in and of themselves do not violate antitrust law and can actually help promote fair competition amongst resellers.
MAP is beneficial to businesses
Though manufacturers in a variety of industries may have a MAP policy, typically businesses that implement such policies are ones that value high brand equity or produce luxury products, in order to protect their price and brand perception.
MAP policies give manufacturers more control of their brand and who is selling them. Most policies have a graduated enforcement system which may start with warnings and notifications, and may ultimately result in removal of egregious violators as an authorized seller.
When it comes to resellers, it’s important to remember that MAP applies to advertised pricing. Retailers can technically sell a manufacturer’s product at lower price points, as long as it is not being advertised as such.
It also helps prevent price wars and protect margins, by ensuring that resellers of the same product will not just slash the price and cause a domino effect that will effectively make everyone a loser.
Retailers don’t have to compete just on price. Practically speaking, oftentimes the MAP price becomes the effective minimum price if all retailers selling the product want to be price competitive.
However, this leaves room to compete on other factors such as service, shipping, and more. This also means that smaller retailers can compete with larger retailers more easily when they have honed specific differentiators.
Many manufacturers incentivize retailers by offering sales bonuses for reaching milestones, exclusive products, dedicated product marketing, cross-branding marketing support, and more. MAP policies can actually help strengthen the manufacturer-retailer relationship, when handled well.
MAP is beneficial to consumers
As mentioned above, retailers can sell for lower than MAP, and that’s a win for consumers (even though it may seem a bit harder to discover the deals). With MAP making price a smaller part of the equation, retailers are forced to wow customers in other ways to deliver exceptional customer experiences and win consumer business.
MAP policies don’t have to be the bane of resellers’ existences. Instead, they can provide value on both sides of the relationship, not to mention helping consumers find authentic retailers from whom they can buy.
The negative view of MAP policies, and the misconceptions that come along with them are reaching their expiration date as the retail market gets even more competitive. Brands and manufacturers must be able to protect their brand value online and monitoring for MAP violations is a key way to do that.