Question

Describe the arguments in favor of resale price maintenance and the criticisms of these arguments.?

Answer 1

Improved Consumer and Brand Goodwill: The most significant benefit gained from this approach is that it preserves the manufacturer's interest and strengthens the concern's and brand's goodwill. This sets and retains a permanent commodity market. This is because the prices charged by different distributors of the drug do not differ. This strategy, in other words, prohibits indiscriminate pricing at different prices, which will adversely affect the concern's goodwill.

Avoiding the use of Loss Leaders: the preservation of resale prices gives another benefit to avoid the selling of Toss leader. A retailer offers the products to customers even below its expense under loss leader pricing, in order to attract the consumer for other items. In following this strategy, once a vendor wins over a buyer, a lifelong customer is generated that can be targeted by the seller in the future. The loss on the selling of leading loss items is offset by the seller's gain on other items. By using the resale price management strategy, which seeks to prevent indiscriminate pricing, these activities can be tested.

Removal of Competition: This minimizes the existence of competition among different shops since the price of the goods under this policy is uniform. This strategy preserves their rights and allows small and large wholesalers and distributors to coexist side by side.

Set and Regular Margin: This strategy guarantees that investment margins are set and regular. Profits are growing and providing the dealers with a sound financial base. Plugging back or self-financing can significantly improve their performance.