The Resale Price Policy

Question 53: The Resale Price Policy

Your role

You represent Norvale Audio, a manufacturer of premium home speakers in the fictional Republic of Aven. Norvale wants to reduce discounting by online retailers. Design a lawful policy under the supplied rule-of-reason framework without turning unilateral conduct into an agreement.

Governing law

Assume the following Aven competition rules apply:

1. A manufacturer may unilaterally announce resale conditions and independently decide whether to continue supplying a retailer that does not follow them. Unilateral conduct does not require retailer assent.

2. A resale-price agreement may arise when the manufacturer seeks or receives retailer promises, negotiates price adherence, invites collective enforcement, gives assurances that competitors will comply, or uses coercion to obtain assent.

3. A signed acknowledgment may confirm receipt only. Language promising compliance, accepting obligations, or requesting approval creates agreement evidence.

4. Resale-price restraints are judged under the rule of reason. Relevant facts include market power, market coverage, barriers to entry, retailer or manufacturer cartels, price effects, service promotion, free riding, product launch needs, and less restrictive alternatives.

5. A minimum advertised-price policy regulates public advertising, not the final confidential sale price, unless its language or enforcement reaches the transaction price.

6. A manufacturer may monitor public prices and advertising through independent data. Retailer complaints may be received, but the manufacturer must not solicit complaints as a policing system, disclose one retailer's future pricing to another, or promise enforcement for a complainant's benefit.

7. Policy exceptions must be objective and administered independently. Negotiated exceptions conditioned on retailer agreement may support concerted action.

8. Termination decisions should be documented as unilateral and based on preannounced criteria. Threats to punish one retailer unless another raises price create agreement and cartel risk.

9. Accurate service and brand-protection rationales are relevant, but labels do not save a policy implemented as an agreement.

Facts

Norvale has an 18 percent share of premium home-speaker sales. The next four manufacturers have shares of 16, 14, 11, and 9 percent. Entry has occurred twice in three years. Norvale sells through 120 retailers, and no retailer has more than 7 percent of national sales.

Norvale funds in-store demonstrations, installer training, and a 60-day return program. Management believes some online sellers free ride on those services and then discount. Internal analysis predicts that a controlled policy may preserve demonstrations, but it does not quantify a price increase.

Sales proposes this program:

• A minimum advertised price 8 percent below list price.
• A prohibition on advertising lower prices, while retailers remain free to set the confidential checkout price.
• First violation: 30-day loss of promotional funds. Second violation within 12 months: 60-day supply suspension. Third: account termination.
• Objective exceptions for discontinued products and manufacturer-authorized promotions.

Sales also proposes requiring each retailer to sign, "We agree to comply with Norvale's pricing requirements." Regional managers want to negotiate exceptions, tell compliant dealers that Norvale will "make everyone hold the line," and ask retailers to report competitors' discounting. One large dealer says it will support Norvale only if Norvale guarantees enforcement against every rival.

The chief executive instead considers a policy announced in writing, effective prospectively, with a receipt-only acknowledgment, independent public-ad monitoring, no retailer promises, no discussion of rivals' future prices, and unilateral enforcement.

Assignment

Counsel Norvale on:

• Whether the proposed minimum advertised-price design reaches advertising or resale price.
• How unilateral policy differs from an agreement.
• The signed-language, negotiated-exception, guarantee, and retailer-reporting risks.
• Rule-of-reason risk using the supplied shares, entry, retailer structure, and service rationale.
• Objective exception and enforcement design.
• Internal training, complaint handling, monitoring, and documentation.
• Whether Norvale should adopt, modify, or abandon the policy.
• Final policy language and implementation steps sufficient to keep the program unilateral without claiming that risk is zero.

Q53 key (Resale Price Policy)

1. The written design is a minimum advertised-price policy if it truly governs public ads and leaves confidential checkout price free. Enforcement may not reach actual resale price through practice. Missed: a label masks transaction-price control.
2. Delete the compliance promise. Use a receipt-only acknowledgment stating no agreement is requested or accepted and Norvale will act independently. Missed: unilateral policy becomes written assent.
3. Ban negotiated adherence, promises that everyone will hold the line, guarantees to the large dealer, and retailer policing of rivals. Receive unsolicited complaints without discussing future enforcement or rival pricing, then verify independently. Missed: dealer pressure becomes concerted action or a retailer cartel.
4. The 18 percent share, dispersed retailers, recent entry, and service investments reduce rule-of-reason risk and support a free-riding rationale, but do not make risk zero. Missed: counsel either declares per se illegality or immunity.
5. Use objective discontinued-product and authorized-promotion exceptions, centralized approvals, public-price monitoring, graduated preannounced consequences, and independent documentation for each supply decision. Missed: discretionary exceptions create negotiations and favoritism evidence.
6. Train sales not to seek promises, coordinate dealers, or threaten one retailer for another. Separate complaint intake from decision-makers and preserve rationale records. Missed: lawful text is implemented unlawfully.
7. Adopt the modified unilateral MAP policy prospectively, not the sales version. If business insists on retailer guarantees or negotiated price adherence, abandon the program. Missed: Norvale accepts agreement risk to gain an assurance the unilateral framework forbids.