Minimum Resale Price (MRP) Policies
A Minimum Resale Price (MRP) policy varies in a few significant ways from a Minimum Advertised Price (MAP) policy. For some manufacturers, an MRP can be a more strategically advantageous policy to implement than MAP, for reasons we’ll discuss below. But because MRPs can be legally more restrictive, and because manufacturers can inadvertently step onto the wrong side of the law using these policies, it is important to understand how MRPs work before rolling out such a policy for your company. In this module we’ll discuss:
- What an MRP policy is, and how it differs from MAP.
- The legal justification for MRP policies.
- Why a manufacturer might choose for an MRP policy over MAP.
- Why a manufacturer would not want an MRP policy.
- Must-have elements in your MRP policy.
What Is an MRP Policy, and How Does it Differ from MAP?
As we discussed in the previous module, manufacturers use MAP policies to establish a floor on the prices they’re willing to let resale partners advertise their products. MAP policies say nothing about the actual resale price, and retailers understand they are free to sell the manufacturer’s products for any prices they wish.
By contrast, a Minimum Resale Price (MRP) policy allows the manufacturer to establish price minimums for both its resellers’ advertised prices of its products and the actual sale prices as well.
In other words, an MRP policy is more far-reaching than MAP in terms of the restrictions it aims to place on resellers.
The MRP-MAP distinction for online sales
When it comes to online sales, a MAP policy could apply to the price published in a retailer’s display ad for the product, on a product’s sales listing page at a marketplace like Amazon, and even in the shopping cart. (Contrary to a common misconception, some courts have ruled the price quoted in an online shopping cart is an extension of the advertised price, because the customer is still technically shopping at that point and is free to abandon the cart.)
But when it comes to the checkout price or the actual, final selling price a retailer uses for an online sale, a MAP policy has no influence. This is where the MAP and MRP policies differ online. Under an MRP policy, every step in the online sales process—advertised price, in-cart price, even checkout and actually selling price—is subject to the policy’s minimum price guidelines.
The MRP-MAP distinction for brick-and-mortar sales
An MRP policy is also broader in its influence when it comes to pricing in physical stores.
A MAP policy can cover anything outside the store itself (magazine or catalog ads, direct mail or postcards, billboards, etc.), but that policy stops at the store’s front door. The way courts have interpreted the law, once a customer is inside the retailer’s shop, all prices the customer encounters—in-store signage, discount announcements over the store’s PA system, and any negotiated prices at the register—are considered selling prices, not advertised prices.
But an MRP covers everything outside and inside the store, meaning a retailer adhering to a manufacturer’s MRP cannot post in-store signs or price tags offering products below the MRP amounts, nor can they actually sell the manufacturer’s product below the MRP-approved amount at the checkout stand.
How Are MRP Policies Legal?
One question that manufacturers often have about MRP policies is why they are legal, and how businesses are able to implement them without violating antitrust law. At first glance, it does seem that a company setting limits on how much its resellers can sell its products would constitute price fixing. But there is actually a strong and long-upheld legal justification for such policies, as long as they are handled properly.
The “Independent Actors” Exception
In a 1919 US Supreme Court case known as Colgate, the Court determined that resale policies could be legal as long as manufacturers or brand owners draft and enforce them unilaterally.
The Court found that while agreements between manufacturer and reseller (or several resellers) could constitute price fixing, this would not be the case if both parties involved in such a policy are free to act as they choose.
In other words, the Court identified an exception to antitrust law where each side in a pricing policy is an “independent actor,” acting on its own and without negotiation with or coercion from the other party.
Think of it this way. A manufacturer drafts an MRP setting a floor on the prices it wants to allow retailers to sell its products. The company develops these prices entirely on its own, without discussing it with any of its resale partners, and then publishes those prices along with an explanation of the consequences for resellers who violate the policy. The company’s resellers are then free to abide by those guidelines or not, knowing the consequences.
Under these circumstances, the manufacturer and all of its resale partners are independent actors, free to behave as they choose. There is no negotiation or coercion, so the prevailing view of antitrust law is that this policy is legal.
But if the manufacturer and its reseller struck an agreement, even verbally, about selling the company’s products for a specific price, that could put the manufacturer on the wrong side of antitrust law.
Why Would a Manufacturer Choose an MRP Policy?
A manufacturer would opt for an MRP over a MAP policy if the company were concerned not only with the erosion of publicly available prices of its products but also with how much its retailers were actually selling those products.
One common example would be a manufacturer concerned that if some of its retail partners were regularly negotiating with customers and selling its products at discounted prices, this could harm the company’s other retailers and jeopardize their margins. In this case, a MAP policy might not be sufficient.
Why Might a Manufacturer Not Want an MRP?
Now consider a hypothetical manufacturer that wants to leave room for its retail partners to negotiate with customers one-on-one. In this manufacturer’s industry, price negotiation at the retail level is common, and the manufacturer knows this freedom to set prices on a case-by-case basis is important to its largest retailers’ business models.
Also, the manufacturer’s main concern is protecting its brand reputation by not letting the advertised prices of its products fall too low. The company isn’t worried about the actual prices its retail partners sell its products for, as long as they keep their advertised prices at or above the amounts the manufacturer prefers.
For a manufacturer in this situation, a Minimum Advertised Price policy would probably be the best strategic fit, whereas a Minimum Resale Price policy might be too restrictive for its key resale partners, and therefore counterproductive.
MRP Policy Must-Haves
1. DRAFT IT AS A UNILATERAL STATEMENT, NOT A TWO-WAY AGREEMENT
As we stated above, courts have found that MRP policies can fall within the boundaries of the law as long as they are written and enforced unilaterally—meaning as a one-way policy in which each party is free to act as they choose, instead of a two-sided agreement between manufacturer and reseller.
A two-way agreement establishing minimum selling prices would likely put the manufacturer in legal jeopardy, because such a policy would obviously raise antitrust issues.
If you are interested in implementing an MRP policy, setting limits on your resellers’ advertised and selling prices of your products, you will need to draft this policy as a unilateral statement.
(Note: MAP policies, by contrast, can be legally drafted as two-way agreements, because such policies affect only advertised prices and not actual selling prices. But MAP agreements can still run afoul of antitrust law if drafted or enforced incorrectly, so these can still be legally risky.)
2. STATE CLEARLY THAT THE POLICY IS UNILATERAL AND THAT YOUR RESELLERS ARE FREE TO FOLLOW OR NOT FOLLOW IT
Another must-have element in an MRP policy, mainly for legal protection, is a clear statement, ideally in the introduction, explaining that the policy is unilateral and was conceived and drafted entirely by your company and without and discussion or consultation with your resale partners.
You will need to discuss your company’s own policy language with counsel or with brand protection experts, but here’s an example of what this verbiage might look like:
This policy has been unilaterally adopted by Company. Company neither solicits nor will it accept assurances by any dealer of acquiescence with this policy.
Nothing in this policy shall constitute an agreement between Company and any dealer of compliance with this policy. The dealer within its own discretion can choose to acquiesce or not acquiesce with this policy.
Company will not discuss conditions of acceptance related to this policy. This policy is non-negotiable and will not be altered, modified, or amended for any dealer.
3. ESTABLISH AN MRP POLICY ADMINISTRATOR, AND DIRECT ALL POLICY QUESTIONS TO THAT INDIVIDUAL
Adding a reference to a designated “MRP Policy Administrator” (or whatever your company chooses to call this role) might seem like a minor issue or even an afterthought, but it could be one of the most important elements of your entire reseller pricing policy. Here’s why.
Even a company’s expertly drafted MRP policy, one that avoids all of the common legal pitfalls, won’t be able to protect the company from antitrust exposure if its employees act in ways that effectively turn the unilateral policy into a de facto agreement. This can happen even if the employees didn’t intend to do anything illegal but simply didn’t understand the law.
For example, let’s say one of your sales reps takes a call from a resale partner asking for permission to drop its advertised or sales price of some of your products, because the team needs to hit its quota before the end of the quarter. The reseller promises to make larger inventory purchases in the next quarter if your rep gives them this short-term “break” from your MRP pricing rules.
If that rep agrees to this—and if anyone at your company has ever treated a similar request differently from another reseller (or does so in the future)—regulators or an antitrust court might find that you’ve entered into an illegal act of price-fixing or an anticompetitive conspiracy with that reseller.
Meanwhile, that rep might have simply been ignorant of the legal risk in that decision.
This is why it is so important to designate an official MRP Policy Administrator at your company to field all reseller questions and requests about your policy. You will also need to train all of your staff that if they ever receive questions from a reseller about your MRP, they should not discuss the policy at all but instead let the person know they’ll have to speak with policy’s administrator.