Suggested retail price

The manufacturer's suggested retail price (MSRP), list price or recommended retail price (RRP) of a product is the price which the manufacturer recommends that the retailer sell the product. The intention was to help to standardise prices among locations. While some stores always sell at, or below, the suggested retail price, others do so only when items are on sale or closeout/clearance.

The term is also backronymed to monroney suggested retail price, after the Monroney sticker which required that the MSRP of new cars be displayed.

Suggested pricing methods may conflict with competition theory, as it allows prices to be set higher than would otherwise be the case, potentially negatively impacting consumers. However, resale price maintenance goes further than this and is illegal in many regions.

Much of the time, stores charge less than the suggested retail price^{[citation needed]}, depending upon the actual wholesale cost of each item, usually purchased in bulk from the manufacturer, or in smaller quantities through a distributor.

Suggested prices can also be manipulated to be unreasonably high, allowing retailers to use deceptive advertising by showing the excessive price and then their actual selling price, implying to customers that they are getting a bargain. Game shows have long made use of suggested retail prices both as a game element, in which the contestant must determine the retail price of an item, or in valuing their prizes.

Additionally, the use of MSRP and SRP have been confused. In certain supply chains, where a manufacturer sells to a wholesale distributor, and the distributor in turn sells to a reseller, the use of SRP is used to denote suggested reseller price. In that case MSRP is used to convey manufacturer suggested retail price.

United States

Under earlier U.S. state Fair Trade statutes, the manufacturer was able to impose a fixed price for items. These fixed prices could offer some price protection to small merchants in competition against larger retail organizations. These were determined to be in restraint of free trade. However, some manufacturers have adopted MSRP — a price at which the item is expected to sell. This may be unrealistically high, opening the market to "deep discounters" who are able to sell products substantially below the MSRP while still making a profit. Recent trends have been for manufacturers to set the MSRP closer to the "street price" — the price at which items actually sell in a free market, but the MSRP does not include taxes, registration, transportation to the dealership and other miscellaneous fees.

India

India operates an MRP (Maximum Retail Price) model. All retail products sold are marked with MRP. Shops cannot charge customers over the MRP. Usually shops charge slightly below MRP to draw more customers in their stores. In some remote areas, consumers are often charged over the MRP though that practice is not legal.

Automobiles

Main article: Monroney sticker

A common use for MSRP can be seen in automobile sales in the United States. Prior to the spread of manufacturer's suggested retail pricing, there were no defined prices on vehicles and car dealers were able to impose arbitrary markups, often with prices adjusted to what the salesperson thought the prospective purchaser would be willing to pay for a particular vehicle.

Currently, the MSRP, or "sticker price" — the price of a vehicle as labeled by the manufacturer, is clearly labeled on the windows of all new vehicles, on a Monroney sticker, commonly called the "window sticker". This is substantially different from the actual price paid to the manufacturer by the dealer, which is known as the invoice price.

Minimum advertised price

Main article: resale price maintenance

Minimum advertised price or MAP (also known as resale price maintenance, or RPM) is the practice of a manufacturer providing marketing funds to a retailer contingent on the retailer advertising an end customer price at or above a specified level. Such agreements can be illegal in some countries when members and terms in the agreement match predefined legal criteria.

Fixed pricing established between a distributor and seller or between two or more sellers may violate antitrust laws in the United States.

In Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 127 S. Ct. 2705 (2007), the Supreme Court considered whether federal antitrust law established a per se ban on minimum resale price agreements and, instead, allow resale price maintenance agreements to be judged by the rule of reason, the usual standard applied to determine if there is a violation of section 1 of the Sherman Act. In holding that vertical price restraints should be judged by the rule of reason, the Court overruled Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911).

Because the rule of reason applies, minimum RPM agreements may still be unlawful. In fact, in Leegin, the Court identified at least two ways in which a purely vertical minimum RPM agreement might be illegal. First, “[a] dominant retailer ... might request resale price maintenance to forestall innovation in distribution that decreases costs. A manufacturer might consider it has little choice but to accommodate the retailer's demands for vertical price restraints if the manufacturer believes it needs access to the retailer's distribution network." Second, “[a] manufacturer with market power ... might use resale price maintenance to give retailers an incentive not to sell the products of smaller rivals or new entrants.”

In both of these examples, an economically powerful firm uses the RPM agreement to exclude or raise entry barriers for its competition.

In addition, federal law is not the only source of antitrust claims as almost all of the states have their own antitrust laws. Leegin dealt only with a claim arising under Section 1 of the Sherman Act.

In the UK in September 2010 an investigation was launched by the Office of Fair Trading into breaches of competition law by online travel agents and the hotel industry in relation to the advertised pricing of hotel rooms. As of April 2011 this was an administrative priority of the OFT.

Rack rate

Rack rate is the travel industry term for the published full price of a hotel room, which the customer would pay if he or she walked into the hotel off the street and asked for a room. While lower than the maximum rate that the hotel may be allowed to charge under local laws, it is higher than the rate most travel agents can book for their customers. Sometimes the terms "run of the house" or "walk-up rate" are used to refer to the same highest rate. The term "rack rate" is also used by travel-related service providers, such as car rental companies or travel mobile phone rental companies, to refer to the same highest rate they would charge customers with no pre-bookings.

External links

• FTC Illegal Business Practices
• Record Companies Settle FTC Charges of Restraining Competition in CD Music Market
• MSRP and a real value of a car