Legal Definitions - fair-trade law

A fair-trade law was a type of state legislation that allowed manufacturers to set minimum resale prices for their products. This meant that retailers were legally obligated to sell certain branded goods at or above a price specified by the manufacturer. The primary goal was often to prevent intense price competition among retailers, protect a brand's perceived value, and ensure that smaller retailers could compete without being undercut by larger stores.

While common in the United States in the past, most fair-trade laws have been repealed. This is because they were found to conflict with federal antitrust laws, such as the Sherman Antitrust Act, which promotes competition and prevents price-fixing agreements that can harm consumers.

Here are some examples illustrating how a fair-trade law would have operated:

• Example 1: High-End Electronics

  Imagine in the 1960s, "AcousticMaster Inc." manufactured premium stereo systems. Under a state's fair-trade law, AcousticMaster could legally mandate that no authorized dealer, whether a small independent audio shop or a large department store, could sell their popular "SonicWave 7000" model for less than $750. If a retailer attempted to sell it for $700, AcousticMaster could pursue legal action to enforce the minimum price.

  This illustrates a fair-trade law because AcousticMaster, the manufacturer, was able to legally enforce a minimum retail price for its product, preventing retailers from engaging in price wars that might devalue the brand or make it difficult for smaller shops to compete.

• Example 2: Designer Apparel

  Consider a luxury fashion house, "Elegance Couture," operating in a state with a fair-trade law in the mid-20th century. Elegance Couture could establish a policy requiring all boutiques and department stores carrying their "Signature Silk Scarf" to sell it for at least $150. This prevented retailers from deeply discounting the scarf, which Elegance Couture believed would cheapen its exclusive brand image.

  Here, the fair-trade law empowered Elegance Couture to protect the premium image and perceived value of its products by preventing retailers from discounting them. This maintained a consistent market price across all sellers, which was a key objective of such laws.

• Example 3: Popular Books

  Decades ago, in a state with a fair-trade law, a major book publisher like "Literary Guild" might have used it to set a minimum price for new hardcover releases. For instance, a highly anticipated novel might have a minimum retail price of $30. This would prevent large chain bookstores from drastically undercutting smaller, independent bookstores on popular titles, theoretically fostering a more level playing field for all retailers.

  This example shows how a fair-trade law could be used to protect smaller businesses. By setting a minimum price, the publisher ensured that no single retailer could gain an overwhelming competitive advantage solely through aggressive price reductions, thereby supporting the viability of diverse retail outlets.