Sherman Act - Vertical Price Fixing and Maintenance - Explained
When Suppliers Fixing Retailer Prices is Illegal
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What is a Vertical Restraint?
Vertical restraint is an arrangement or agreement between members of a supply chain (such as manufacturers, wholesalers, distributors, or retailers) to fix the price or supply of goods.
When is Vertical Price Fixing & Price Maintenance an illegal Resale Restraint?
Under the Sherman Act 1, an agreement among manufacturers or distributors of a product to control the retail price for a product is an illegal restraint of trade. A manufacturer controlling the final price of a product is known as vertical price fixing. A manufacturer controlling the maximum price at which distributors can resale a product is known as price maintenance. Both of these types of agreements have a tendency to reduce competition and harm consumers. Vertical price fixing involving an agreement among competitors is a naked restraint of trade and is per se illegal. Resale price maintenance, on the other hand, is not generally considered a naked restraint of trade. As such, a court examining such a relationship will apply the rule of reason to determine if the restraint is anticompetitive and therefore illegal.
Note: Under the Colgate Doctrine, a manufacturer may simply announce its prices and refuse to deal with those who fail to comply with this price structure. However, a manufacturers attempt at retail price maintenance is illegal if there is coercion or pressure other than the announced policy and its implementation.
Example: ABC Corp Manufactures widgets. 123 Corp is a wholesaler of ABC's widgets. ABC Corp enters into an agreement to force 123 Corp to resell its widget at a specific price. This is price maintenance and is subject to a rule of reason analysis. If ABC Corp attempts to enter into an agreement with a final retailer regarding the sale price of the good, this would be price fixing and is per se illegal.
Related Topics
- What is Antitrust Law?
- What are the Major Antitrust Laws?
- What government agency enforces antitrust law?
- What Sanctions are available under antitrust law?
- What is the Sherman Act of 1890 (Sherman Act)?
- What is a Contract, Combination, of Conspiracy in restraint of trade?
- What is Per Se Illegality and the Rule of Reason?
- What is a Monopoly?
- Herfindahl Hirschman Index (HHI) Definition
- What businesses are exempt from the Sherman Act?
- Horizontal Restraint Sherman Act?
- Sharing Information?
- Refusal to Deal?
- Territorial Agreement?
- Price Fixing?
- Resale restraint?
- Exclusive dealing?
- Tying products?
- Territorial agreements?
- What is Monopolization under the Sherman Act?
- What is the Clayton Act of 1914 (Clayton Act)?
- What is price discrimination under the Clayton Act?
- What are special arrangements prohibited under the Clayton Act?
- When are tying contracts an illegal restraint under the Clayton Act?
- When are reciprocal dealing contracts an illegal restraint under the Clayton Act?
- How does the Clayton Act regulate mergers and acquisition?
- FTC Act Antitrust Law