advertorial
law & the Entrepreneur
WHAT IS “RESALE PRICE
MAINTENANCE”?
R
esale price maintenance is a
practice whereby parties in a
vertical relationship such as
manufacturers or suppliers
and their retailers or distributors agree on the resale price of goods or
services. Firms will be regarded as having engaged in resale price maintenance
if there is an understanding or knowledge of the price at which a reseller is
expected to on-sell the goods or services
and a sanction is imposed for not adhering to the expected price. Minimum
resale price maintenance occurs where
it is agreed or dictated to resell goods or
services at or above a price floor whilst
maximum resale price maintenance occurs where it is agreed or dictated to
resell goods or services at or below a
price ceiling.
prohibition rationale
In terms of the South African Competition Act, 1998 parties who are in a vertical relationship are prohibited from
engaging in the practice of minimum
resale price maintenance. This means
that manufacturers or suppliers are
prohibited from prescribing the minimum price at which their retailers or
Anne Daniel
Senior
Associate
Brink Cohen
Le Roux
engage in minimum resale price maintenance are liable for an administrative
fine of up to 10% of their turnover.
The Competition Tribunal imposed
an administrative fine of R3 million
on Federal Mogul Aftermarket Southern Africa (Proprietary) Limited after
it was found that it had engaged in
minimum resale price maintenance in
respect of motor vehicle components.
Toyota South Africa Motors (Proprietary) Limited was fined R12 million
for prescribing the maximum discounts
which Toyota dealers were allowed to
give customers on certain models of
Toyota motor vehicles.
recommended price
distributors resell their good or services
or the maximum discount that may be
provided to customers. Franchisors and
franchisees are also regarded as parties
in a vertical relationship and the same
prohibition would apply to them.
The rationale behind prohibiting
minimum price resale maintenance is
to enhance competition between firms
at the same level of the market structure as well as intra-brand competition
(i.e. competition between dealers of the
same brand or label).
conduct unbecoming
Minimum resale price maintenance is
per se unlawful which means that no
defence can be raised for engaging in
such conduct. Firms who are found to
The Competition Act, 1998, does not expressly prohibit maximum resale price
maintenance nor is such conduct per se
unlawful.
Manufacturers, suppliers and franchisors are permitted to recommend a
sale price to the reseller of their goods
or services if they comply with two conditions. Firstly, the manufacturer, supplier or franchisor must make it clear
that the recommendation is not binding
and secondly, if the product has a price
stated on it, the words "recommended
price" must appear next to the stated
price. Manufacturers, suppliers and
franchisors must ensure that the pricing clauses in their agreements with
resellers comply with the conditions
stated above.
s e p t e m be r 20 09
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