Final answer:
A minimum resale price maintenance (RPM) agreement is a tool used in business to set a minimum price for a product, reducing competition by preventing price wars. The acceptability of RPM agreements varies depending on the context.
Step-by-step explanation:
A minimum resale price maintenance (RPM) agreement is a tool used in business to maintain a minimum price at which a product can be resold by a retailer. It is a contractual agreement between a manufacturer and its retailers, setting a minimum price below which the retailer cannot sell the product.
For example, a clothing manufacturer might have an RPM agreement with its retailers to ensure that its products are not sold at very low prices.
This type of agreement can reduce competition by establishing a floor price for the product, preventing retailers from engaging in price wars or undercutting each other to gain a competitive advantage.
In this way, RPM can help protect the brand image and value of a product. However, it can also limit price competition and potentially lead to higher prices for consumers.
Acceptability of minimum RPM agreements varies across different jurisdictions and depends on the context. In some cases, they can be considered acceptable when they serve a legitimate purpose, such as ensuring fair compensation for retailers or protecting the quality and reputation of a product. However, they can also be viewed as anti-competitive and detrimental to consumer welfare if they are used to stifle competition or maintain artificially high prices.