Suggested retail price
From Wikipedia, the free encyclopedia
The (manufacturer's) suggested retail price (MSRP or SRP), list price or recommended retail price (RRP) (originally, Monroney suggested retail price) of a product is the price the manufacturer recommends that the retailer sell it for. The intention was to help to standardize 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.
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, 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[citation needed].
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.
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[edit] 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 manufactures to set the MSRP closer to the "street price" — the price at which items actually sell in a free market.
[edit] Automobiles
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. The actual price paid to the manufacturer by the dealer (and all rebates/incentives the manufacturer provides to the dealer) is becoming common knowledge. This information is becoming readily available via the internet. This information is helping consumers purchase vehicles with more ease, avoiding any need to shop from dealer to dealer, because the consumer is much more informed than ever before. However, the incentives that dealers receive can be so high as to reduce the final price that a dealer pays for a vehicle to as low as half of its invoice price. This is an often overlooked possibility on the consumers part, often assuming that a dealer selling at invoice is making no profit. In fact, it is quite common for dealers to sell their vehicles below invoice, while still making good profit.
[edit] Minimum advertised price
Minimum advertised price (also known as resale price maintenance) is the practice of restricting pricing at the consumer level. Price fixing agreements are illegal in many 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 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 ecoomically powerful firm uses minimum 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.
[edit] 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.
