Minimum advertised price (MAP) policies are becoming more and more popular. Especially with the rise of cutthroat competition in the online marketplace, many producers are hearing from their resellers that they want margin protection, and are getting concerned with the possible erosion of their brand equity from widespread promotion of low pricing. Naturally, many companies have turned to consultants and the internet for information on MAP policies.
To review the basics, a MAP policy is a seller’s policy that resellers of its product will incur penalties if it advertises the seller’s products below a designated resale price. Penalties can range from the denial of promotional support for the particular advertisement featuring the below-MAP price to a wide range of heavier sanctions, up to and including termination. MAP policies do not prohibit the reseller from selling the product below a given price; such a policy, depending on how it is implemented, is either a “Colgate” policy that the seller will unilaterally refuse to deal with discounters or a resale price maintenance (RPM) agreement, sometimes called “vertical price fixing.” RPM agreements are scrutinized more closely under the antitrust laws than MAP policies are, because they directly impact the prices paid by consumers and can potentially facilitate more serious antitrust violations. They were per se unlawful under the federal Sherman Act until Leegin Creative Leather Products v. PSKS, Inc., 551 U.S. 3 (1997), and can still be of concern under that statute, while still being per se unlawful in some states.
As an example of bad MAP advice, I recently came across an e-commerce blog by a firm specializing in “dynamic pricing strategies.” About half of the firm’s blog posts are about MAP policies, and more specifically with suppressing the resale of product at low prices on that online marketplace that reminds you of Wonder Woman. The worst post, entitled “What is Minimum Advertised Price and Why Do Retailers Need It?” is almost a caricature of what a MAP policy isn’t and why not to (legally) implement one. It conflates MAP with RPM, repeatedly saying that MAP is for keeping resellers’ prices up. Under the heading, “Price Wars Are Lose-Lose Situations,” it offers such pearls of wisdom as, “Drastically dropping your prices to compete is a shortcut that is incredibly harmful for your business.” It promotes MAP as a solution to these price wars:
First, retailers should know that MAP is uniform. Everyone shares the same price floor, which will halt price wars and keep one retailer from taking cheap shots at another. Instead of having it hold you back, MAP acts as an unspoken treaty between you and your competitor. Its uniformity can keep you certain that your competitor won’t violate it either.
By equating MAP with an RPM policy, this paragraph tells retailers that they should view MAP as an unspoken horizontal (or explicit hub-and-spoke) price-fixing agreement. There is even an animated meme of someone offering a handshake with the text, “Deal,” in case you didn’t get the message that it is just like collusion. Many firms purporting to inform companies about MAP policies take a similar line, blithely oblivious to the fact that, if a MAP policy were taken for the reasons and with the consequences they advocate, they would be at least a vertical agreement on price, and might lead to an inference of a per se unlawful price-fixing conspiracy among competitors.
Other posts on the blog discuss ways of enforcing MAP policies in such a way that they establish a minimum selling price, not merely an advertised price. “Add-to-cart pricing,” in which a below-MAP price is not revealed until the consumer adds an item to the online shopping cart, is depicted as a way to cheat on MAP, and it is suggested that this practice can be made a MAP violation. No mention is made that this may convert the MAP policy to an RPM agreement, heightening antitrust concerns.
MAP policies can be pro-competitive and serve the unilateral interest of the implementing supplier, but they should be crafted carefully and for the right reasons, such as protecting brand equity and preventing free-riding on full-service resellers that need margin for adequate promotional and other services. Suppliers should consult with experienced antitrust counsel, not “dynamic pricing strategists.” The worst thing that a supplier could do in implementing a MAP policy is to circulate, even internally, a message like the one above, decrying ruinous price competition and making explicit that the policy is intended to function as vertical and even horizontal price fixing. MAP cases are not often challenged in court, but producing such a document, which would be non-privileged and responsive to the customary discovery requests, could make such a challenge very expensive.