List price

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This 1916 advertisement distinguishes the list price and a lower our special price. 1916 Griffith and Turner Co. - farm and garden supplies (1916) (14580164387).jpg
This 1916 advertisement distinguishes the list price and a lower our special price.

The list price, also known as the manufacturer's suggested retail price (MSRP), or the recommended retail price (RRP), or the suggested retail price (SRP) of a product is the price at which its manufacturer notionally recommends that a retailer sell the product.[ citation needed ]

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Suggested pricing methods may conflict with competition theory, as they allow prices to be set higher than would be established by supply and demand. Resale price maintenance—fixing prices—goes further than suggesting prices, and is illegal in many countries.[ citation needed ]

Retailers may charge less than the suggested retail price, depending upon the actual wholesale cost of each item, usually purchased in bulk from the manufacturer, or in smaller quantities through a distributor. The suggested price is sometimes unrealistically high, so the seller can appear to be offering a discount.[ citation needed ] Some retailers apply discount stickers over top of original prices to indicate a discount to consumers.

List price often cannot be compared directly internationally as products may differ in detail, sometimes due to different regulations, and list prices may or may not include taxes.[ citation needed ]

India and Bangladesh

India and Bangladesh do not use list prices but instead have a maximum retail price.

United Kingdom

In the United Kingdom, the list price is referred to as a recommended retail price or RRP.

In 1998, the Secretary of State for Trade and Industry prohibited the placing of RRP on electrical goods under the "Domestic Electrical Goods Order", but this ruling was lifted by the Competition Commission in February 2012. [1]

United States

In the United States, the list price is referred to as the manufacturer's suggested retail price or MSRP.

Under earlier US state Fair Trade statutes, the manufacturer was able to impose a fixed price for items.[ citation needed ] The fixed prices could offer some price protection to small merchants in competition against larger retail organizations. These were determined to be in restraint of trade. Many manufacturers have adopted MSRP, a price at which the manufacturer suggests the item be priced by a retailer. The term "suggested" can be misleading because in many cases, the MSRP is extremely high compared to the actual wholesale cost, opening the market to "deep discounters", who are able to sell products substantially below the MSRP but still make a profit. The discount stores benefit from exorbitant MSRPs because the discount offered increases the perceived value to customers.[ citation needed ]

Automobiles

A common use for MSRP can be seen in automobile sales in the United States. Prior to the spread of manufacturer's suggested retail pricing, there were no defined prices on vehicles, and car dealers were able to impose arbitrary markups, often with prices adjusted to what the salesperson thought the prospective purchaser would be willing to pay for a particular vehicle.

Currently, the MSRP, or "sticker price", the price of a vehicle as labeled by the manufacturer, is clearly labeled on the windows of all new vehicles, on a Monroney sticker, commonly called the "window sticker". The sticker was added as part of the Automobile Information Disclosure Act of 1958. [2] The MSRP is different from the actual price paid to the manufacturer by the dealer, which is known as the "invoice price". There are now numerous sources, such as online appraisal tools, that can be used to find the MSRP and invoice price. [3]

Minimum advertised price

MAP, or Minimum Advertised Price, refers to the lowest price a retailer is allowed to advertise a product for sale. It's a policy that manufacturers or distributors set to maintain brand identity and to ensure that retailers do not advertise or sell their products at excessively low prices, which can lead to several issues such as: brand devaluation, price erosion and unfair competition. [4]

United States

Fixed pricing established between a distributor and seller or between two or more sellers may violate antitrust laws in the United States.

In Leegin Creative Leather Prods., Inc. v. PSKS, Inc. , 127 S. Ct. 2705 (2007), the Supreme Court considered whether federal antitrust law established a per se ban on minimum resale price agreements and, instead, allow resale price maintenance agreements to be judged by the rule of reason, the usual standard applied to determine if there is a violation of section 1 of the Sherman Act. In holding that vertical price restraints should be judged by the rule of reason, the Court overruled Dr. Miles Medical Co. v. John D. Park & Sons Co. , 220 U.S. 373 (1911).

Because the rule of reason applies, minimum RPM agreements may still be unlawful. In fact, in Leegin, the Court identified at least two ways in which a purely vertical minimum RPM agreement might be illegal. First, "[a] dominant retailer ... might request resale price maintenance to forestall innovation in distribution that decreases costs. A manufacturer might consider it has little choice but to accommodate the retailer's demands for vertical price restraints if the manufacturer believes it needs access to the retailer's distribution network". Second, "[a] manufacturer with market power... might use resale price maintenance to give retailers an incentive not to sell the products of smaller rivals or new entrants."

In both of these examples, an economically powerful firm uses the RPM agreement to exclude or raise entry barriers for its competition.

In addition, federal law is not the only source of antitrust claims as almost all of the states have their own antitrust laws.

United Kingdom

In the UK, in September 2010, an investigation was launched by the Office of Fair Trading into breaches of competition law by online travel agents and the hotel industry in relation to the advertised pricing of hotel rooms. As of April 2011, this was an administrative priority of the OFT.

Australia

In Australia, any sort of attempt at setting minimum advertised pricing or any retaliation against such a reseller is against the Competition and Consumer Act. [5]

It is also illegal for resellers to ask their suppliers to use recommended price lists to stop competitors from discounting. In most cases, a supplier may specify a maximum price for retail. [5]

There is an exception to this where the reseller is engaging in a loss-leading exercise. [5]

Rack rate

'Rack rate' is the travel industry term for the published full price of a hotel room, which the customer would pay by just walking into the hotel off the street and asking for a room. In some jurisdictions, a customer may be entitled to overstay a reservation by paying the rack rate.[ citation needed ] While the rack rate can be lower than the maximum rate that the hotel may be allowed to charge under local laws, it is higher than the rate most travel agents can book for their customers. Sometimes the terms "run of the house" or "walk-up rate" (in Europe usually: "walk-in rate") are used to refer to the same highest rate.[ citation needed ]

The term "rack rate" is also used by travel-related service providers, such as car rental companies or travel mobile phone rental companies, to refer to the same highest rate that customers would be charged with no prebookings.[ citation needed ]

See also

Related Research Articles

The Robinson–Patman Act (RPA) of 1936 is a United States federal law that prohibits anticompetitive practices by producers, specifically price discrimination.

<span class="mw-page-title-main">Price fixing</span> Agreement over prices between participants on the same side in a market

Price fixing is an anticompetitive agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand.

Sales promotion is one of the elements of the promotional mix. The primary elements in the promotional mix are advertising, personal selling, direct marketing and publicity/public relations. Sales promotion uses both media and non-media marketing communications for a pre-determined, limited time to increase consumer demand, stimulate market demand or improve product availability. Examples include contests, coupons, freebies, loss leaders, point of purchase displays, premiums, prizes, product samples, and rebates.

Discounts and allowances are reductions to a basic price of goods or services.

Anti-competitive practices are business or government practices that prevent or reduce competition in a market. Antitrust laws ensure businesses do not engage in competitive practices that harm other, usually smaller, businesses or consumers. These laws are formed to promote healthy competition within a free market by limiting the abuse of monopoly power. Competition allows companies to compete in order for products and services to improve; promote innovation; and provide more choices for consumers. In order to obtain greater profits, some large enterprises take advantage of market power to hinder survival of new entrants. Anti-competitive behavior can undermine the efficiency and fairness of the market, leaving consumers with little choice to obtain a reasonable quality of service.

In Economics and Law, exclusive dealing arises when a supplier entails the buyer by placing limitations on the rights of the buyer to choose what, who and where they deal. This is against the law in most countries which include the USA, Australia and Europe when it has a significant impact of substantially lessening the competition in an industry. When the sales outlets are owned by the supplier, exclusive dealing is because of vertical integration, where the outlets are independent exclusive dealing is illegal due to the Restrictive Trade Practices Act, however, if it is registered and approved it is allowed. While primarily those agreements imposed by sellers are concerned with the comprehensive literature on exclusive dealing, some exclusive dealing arrangements are imposed by buyers instead of sellers.

Resale price maintenance (RPM) or, occasionally, retail price maintenance is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer's product at certain prices, at or above a price floor or at or below a price ceiling. If a reseller refuses to maintain prices, either openly or covertly, the manufacturer may stop doing business with it. Resale price maintenance is illegal in many jurisdictions.

In marketing, a rebate is a form of buying discount and is an amount paid by way of reduction, return, or refund that is paid retrospectively. It is a type of sales promotion that marketers use primarily as incentives or supplements to product sales. Rebates are also used as a means of enticing price-sensitive consumers into purchasing a product. The mail-in rebate (MIR) is the most common. A MIR entitles the buyer to mail in a coupon, receipt, and barcode in order to receive a check for a particular amount, depending on the particular product, time, and often place of purchase. Rebates are offered by either the retailer or the product manufacturer. Large stores often work in conjunction with manufacturers, usually requiring two or sometimes three separate rebates for each item, and sometimes are valid only at a single store. Rebate forms and special receipts are sometimes printed by the cash register at time of purchase on a separate receipt or available online for download. In some cases, the rebate may be available immediately, in which case it is referred to as an instant rebate. Some rebate programs offer several payout options to consumers, including a paper check, a prepaid card that can be spent immediately without a trip to the bank, or even as a PayPal payout.

<span class="mw-page-title-main">Closeout (sale)</span>

A closeout or clearance sale is a discount sale of inventory either by retail or wholesale. It may be that a product is not selling well, or that the retailer is closing because of relocation, a fire, over-ordering, or especially because of bankruptcy. In the latter case, it is usually known as a going-out-of-business sale or liquidation sale, and is part of the process of liquidation. A hail sale is a closeout at a car dealership after hail damage.

Vertical restraints are competition restrictions in agreements between firms or individuals at different levels of the production and distribution process. Vertical restraints are to be distinguished from so-called "horizontal restraints", which are found in agreements between horizontal competitors. Vertical restraints can take numerous forms, ranging from a requirement that dealers accept returns of a manufacturer's product, to resale price maintenance agreements setting the minimum or maximum price that dealers can charge for the manufacturer's product.

Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), is a US antitrust case in which the United States Supreme Court overruled Dr. Miles Medical Co. v. John D. Park & Sons Co.Dr Miles had ruled that vertical price restraints were illegal per se under Section 1 of the Sherman Antitrust Act. Leegin established that the legality of such restraints are to be judged based on the rule of reason.

Under a unilateral policy a manufacturer, without any agreement with the reseller, announces a minimum resale price and refuses to make further sales to any reseller that sells below the announced price. Unilateral policy is a form of resale price maintenance that enables a manufacturer to influence the price at which its distributors and dealers resell its products without a formal contract regarding the resale price. The policy was first identified in United States v. Colgate & Co., 250 U.S. 300 (1919).

Albrecht v. Herald Co., 390 U.S. 145 (1968), was a decision by the United States Supreme Court, which reaffirmed the law that fixing a maximum price was illegal per se. This rule was reversed in 1997 by State Oil Co. v. Khan, which held that maximum price-setting was not inherently anti-competitive and not always a violation of antitrust law, and should therefore be evaluated for legality under the rule of reason rather than a per se rule.

Wholesale fashion distribution refers to the global market of bulk clothing sales, in which producers, wholesalers and sellers are involved in a commercial, business-to-business process.

<span class="mw-page-title-main">Resale Prices Acts</span> United Kingdom legislation

The Resale Prices Act 1964 was a consolidation Act which when passed, now considered all resale price agreements to be against public interest unless proven otherwise.

United States v. Colgate & Co., 250 U.S. 300 (1919), is a United States antitrust law case in which the United States Supreme Court noted that a company has the power to decide with whom to do business. Per the Colgate Doctrine, a company may unilaterally terminate business with any other company without triggering a violation of the antitrust laws.

The invoice price is the actual price that the end-customer retailer pays to the manufacturer or distributor for a product.

United States v. Parke, Davis & Co., 362 U.S. 29 (1960), was a 1960 decision of the United States Supreme Court limiting the so-called Colgate doctrine, which substantially insulates unilateral refusals to deal with price-cutters from the antitrust laws. The Parke, Davis & Co. case held that, when a company goes beyond "the limited dispensation" of Colgate by taking affirmative steps to induce adherence to its suggested prices, it puts together a combination among competitors to fix prices in violation of § 1 of the Sherman Act. In addition, the Court held that when a company abandons an illegal practice because it knows the US Government is investigating it and contemplating suit, it is an abuse of discretion for the trial court to hold the case that follows moot and dismiss it without granting relief sought against the illegal practice.

A hub-and-spoke conspiracy is a legal construct or doctrine of United States antitrust and criminal law. In such a conspiracy, several parties ("spokes") enter into an unlawful agreement with a leading party ("hub"). The United States Court of Appeals for the First Circuit explained the concept in these terms:

In a "hub-and-spoke conspiracy," a central mastermind, or "hub," controls numerous "spokes," or secondary co-conspirators. These co-conspirators participate in independent transactions with the individual or group of individuals at the "hub" that collectively further a single, illegal enterprise.

Dr. Miles Medical Co. v. John D. Park & Sons Co., (1911), was a United States Supreme Court case on anti-trust grounds that ruled that resale price maintenance, a form of vertical restraint, is illegal per se.

References

  1. ↑ Competition Commission, CC lifts Domestic Electrical Goods Order, published 1 February 2012, archived 25 July 2013, accessed 3 June 2021
  2. ↑ "Manufacturer Suggested Retail Price: MSRP Meaning & Details Explained - DealDriver". www.dealdriver.ai. Retrieved 2023-07-02.
  3. ↑ "How much is my car worth? Free car value appraisal". Edmunds.com .
  4. ↑ Williams, Tom (January 18, 2023). "What is MAP?". FrigginYeah. Retrieved February 2, 2024.
  5. 1 2 3 "Relevant sections of the Competition and Consumer Act". Australian Competition & Consumer Commission. Retrieved 15 November 2021.
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