The Competition and Markets Authority (CMA) has written an open letter to businesses alerting them that if suppliers restrict their retailers’ prices, they can be breaking the law.

The letter follows two recent cases in which businesses were fined a combined total of over £3 million for engaging in resale price maintenance (RPM).

RPM occurs when a supplier and a retailer agree that the retailer will not resell or advertise the supplier’s products below a specified price. RPM can also be achieved indirectly, for example as a result of restrictions on discounting or where there are threats or financial incentives to sell at a particular price.

Merely setting a “recommended” retail price is not against the law, provided there are no attempts to enforce compliance with the recommended retail price. However, the CMA believes that RPM agreements are usually illegal as they can prevent retailers from being able to offer lower prices to attract customers, or to sell off surplus stock.

The CMA says this is a particularly important issue as online sales channels develop, with restrictions on discounting for internet sales capable of being illegal RPM.

The regulator’s research shows that businesses’ understanding of RPM is low; about one-third of the businesses surveyed incorrectly thought it was legal to set the price at which other businesses can resell their product, with another 37% uncertain on the rules. Only 29% correctly responded that “it is unlawful to set the price at which others can resell your products”.

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