Are you a product based business? Did you know that it is illegal for suppliers to impose minimum prices for the resale of their goods and services?
Suppliers must not:
- set minimum prices in formal policies or agreements
- offer retailers a discount if they sell at or above a minimum price
- refuse to supply retailers that sell below a minimum price
- punish retailers for selling below a set price, for example, by taking away a discount or sending a warning.
This is known as Resale Price Maintenance and it is illegal because it limits competition and inflates prices for consumers.
It’s also illegal for resellers to ask suppliers to stop competitors selling below a minimum price.
By way of example, if your business manufactures candles and seeks to engage a stockist, you may provide your stockist with a list of recommended prices. If however, you offer a 10% discount to retailers who pay their accounts on time, but the discount isn’t available if the retailer sells the candles for less than the recommended prices, the Australian Competition and Consumer Commission will likely find that you have engaged in Resale Price Maintenance. This is because the discount is taken away from the retailer if they sell the candle for less than the price recommended by the wholesaler.
What suppliers are allowed to do:
- Suppliers can recommend appropriate prices, for example, by providing a recommended resale price (RRP) list;
- Suppliers can set a maximum retail price;
- Suppliers can refuse to supply resellers that engage in loss lending selling (where resellers sell a product below market cost in order to attract other customers or to sell additional products to customers).
The ACCC has the power to investigate retail price maintenance and issue penalties for the activity. An application can also be made to the Federal Court of Australia for an injunction to stop the illegal activity, damages, penalties and disqualification of parties from directorship. In 2023 a record penalty was impost by the Federal Court for Retail Price Maintenance against a company for $15 million.
As always, it is important to review the terms of any agreement you may hold with your retailer / stockist. At Cheney Suthers, we can help you to prepare a Distribution Agreement tailored to your businesses needs to ensure that your product supply is both profitable and compliant with Competition and Consumer Law.
