"Resale-price-maintenance" is also called as vertical-price-fixing. The manufacture fixes the least price of the product that the seller must sell. This is the only way a retailer can earn enough profits.
The manufacturer threatens the retailers that if they give below the fixed price, they would be cut off. This is done to maintain the brand image of the product.
Mr. X's view on Resale-Price-Maintenance:
Mr. X feels that it is legal for a manufacturer to cut-off retailers who discount prices because the company wants to retain a brand name. In addition, the retailers want to sell the product at a lower rate which attracts the consumers to buy the product and it also induces them to buy other brands and products from the retail shop.
The retailers are trying to sell their products at a loss that would affect the brand name of the product. Hence, it is legal to have resale price maintenance.
In the city of Nyrk, there was an association among 50 bakeries. The system of distribution to buy from a single seller is being followed. The association planned to increase price of bread and hence all the bakeries accepted and printed the new price on the bread sleeves.
Violation of antitrust law:
The violations of antitrust laws are as follows:
• Per se
The violations of "per se" are automatic whereas the violations of "rule of reason" are considered to be illegal only if they have an "anti-competitive impact."
Per se illegality:
Per se illegality refers to an action that is illegal regardless of situation.
The competing firms come together with an agreement regarding supply of goods. Price fixing is an example of per se illegality.
Rule of reason:
Rule of reason refers to an action that is determined as illegal by considering the evidence.
For example, if a firm having higher market share, allows demand and supply to determine the price, then it is not illegal.
Bakeries in the violation of antitrust laws:
The bakeries are said to violate the antitrust law as per the illegality of "per se" It is considered to be illegal for firms to increase the price of bread on their own unless they really face problems in manufacturing-cost.
Phillip's acquisition of 55 percent of the electric shaver industry does not constitute a violation of antitrust laws because for a number of reasons. Antitrust laws were created
• To prohibit the wrongful acquisition of a monopoly.
• To prohibit acts that reduces competition.
Remington is claiming that the increased competition from Phillips will hurt their profits, which may be true, but this does not reduce competition; it forces Remington and other competitors to adapt by offering different products and/or by adjusting their prices.
Controlling 55 percent of the electric shaver industry is not a monopoly; regardless of market share control, a monopoly does not exist unless one group can exclude competitors or set prices. Unless there is evidence to suggest that Phillips is able to keep competitors out of the market, Remington's claim is not valid.