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Who has the power to determine prices? PDF Print

Printed in the "Business Monday" on July 13, 2009.

It is understandable why a supplier may want to exert control over the reselling of his supplies. The main reason normally given for such conduct is the “free rider” argument, where suppliers suggest that if they do not ensure the price of the good is kept above a certain level, then the retailer who spends significant amounts of money marketing and promoting the product may not be able to recover his marketing and promotion costs. The argument is that once the goods are well marketed and promoted by one dealer normally at significant cost, another dealer having not marketed the product could come along and sell it at a lower cost, driving the price down and the original dealer who promoted the product may not even be able to make a sale.

The setting of resale prices by suppliers is considered anti-competitive under the Fair Competition Act CAP326C (Act). Sections 24 and 25 of the Act look expressly at this type of conduct and refer to it as "resale price maintenance" which in its simplest terms is conduct where a supplier takes action to try to ensure that an independent dealer resells the goods at or above a price specified by the supplier. Sections 25 states:


 "it is unlawful for a supplier of goods or his agent to

(a)  include in an agreement for the sale of goods a term or condition which is void by virtue of this section;

(b)  require, as a condition of supplying goods to a dealer, the inclusion in the agreement of any term or condition or the giving of any undertaking that is void in accordance with subsection (1);

(c)  notify to dealers, or otherwise publish in relation to any goods, a price stated or calculated to be understood as the minimum price which may be charged on the resale of the goods".


Resale price maintenance is sometimes described as "vertical price fixing" and is often engaged in by manufacturing enterprises which try to dictate to the businesses reselling their product, the retail price at which the manufactured product should be sold. Distributors also tend to practice this type of conduct. There are a number of ways in which suppliers try to impose or maintain a minimum resale price for its goods. They may persuade a dealer to agree not to sell below a minimum price, or may withhold supply from, or otherwise discriminate against, dealers who are, or are likely to sell below the desired minimum price.

This type of conduct is prevalent worldwide and courts generally have ruled that this practice is anti-competitive and have penalised businesses which practice this conduct. 

The Commission conducted a number of advocacy programmes during which this anti-competitive practice was highlighted. This heightened awareness led to the Commission being approached by some companies. For example one company which felt that it was engaging in the practice of resale price maintenance stated that it did not initially realise that its actions were anti-competitive as it had only stipulated that retailers should not set their price below a certain amount. However, this is resale price maintenance and the company was advised that retailers should set their prices independently and without fear of sanction. After meeting with the Commission the company has ceased this practice. It should be noted that the Act does not prevent a supplier from publishing a recommended retail price. Section 25 of the Act states:

"Nothing in subsection (2)(c) shall be construed as precluding a supplier, or an association or agent acting on a supplier's behalf, from notifying to dealers or otherwise publishing prices recommended as appropriate for the resale of goods supplied or to be supplied by the supplier".

Recommended retail prices are therefore acceptable provided that it is made clear that the product may be sold at a lower price without sanction. Where a company imposes a minimum resale price on its affiliate company or its agents this is also not considered a breach of the resale price provisions contained in the legislation. 

Resale price maintenance is prohibited because it prevents traders from competing with each other by restricting prices and ultimately savings to consumers. It forces all traders to sell at the same price and therefore implicitly encourages inefficiency. Where this is allowed to exist, competition in the particular market will be distorted.
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