Resale price maintenance is illegal, and the ACCC has never allowed anyone to do it. Until now. It's giving the green light to power tool brand Festool.

The prohibition on resale price maintenance means that manufacturers or distributors can’t mandate a minimum price that downstream wholesalers or retailers can charge. All they can do is ‘recommend’ a price. That’s why you see recommended retail prices everywhere. 

The idea is that manufacturers can't prevent retailers from discounting their products and competing on price. Manufacturers want to do this because they perceive an erosion of the brand’s value if the goods are sold at too low a price. But consumers lose out if the retailers can’t compete with one another to offer the best deal. 

The prohibition on resale price maintenance is pretty much the longest standing rule in Australian competition law. So it is a big deal that the ACCC proposes to grant the first ever authorisation for it.

The ACCC is set to authorise Festool to impose minimum retail prices for its products. As with any ACCC authorisation, Festool had to prove that there were substantial public benefits flowing from the proposed resale price maintenance. In this case, some retailers provide pre and post sales services and some don’t. The ones who don’t can discount their Festool products and ‘free ride’ off the retailers who do offer the additional services. The retailers who do provide the service get a lesser return. The benefits to consumers of minimum prices are that the service-providing retailers can compete with the non-service retailers, preserve their margin, and afford to keep offering the extra service. Additionally, the power tool market is big and has lots of competitors. That means consumers can vote with their feet if they don’t like the price for Festool tools.

If you’re a manufacturer and you have good reasons for wanting to set minimum resale prices, it’s definitely worth a look at whether authorisation is an option for you. The Festool example is a good precedent. And better still, the current government review of competition policy recommends making it easier to seek immunity for resale price maintenance. Happy days.