Legal Definitions - vertical price-fixing

Vertical price-fixing occurs when companies at different levels of a supply chain agree to control the prices at which products or services are sold. This typically involves an agreement between a manufacturer and its distributors or retailers, or between a wholesaler and its retailers, to set, maintain, or otherwise manipulate resale prices. Such agreements are generally illegal under antitrust laws because they reduce competition and can harm consumers by limiting their choices and potentially increasing costs.

Here are some examples:

• Imagine a well-known luxury watch manufacturer, Timeless Watches, that sells its products to various authorized jewelry stores. Timeless Watches implements a policy requiring all its retailers to sell a specific new watch model for no less than $5,000. If a jewelry store attempts to offer the watch at a discounted price of $4,500, Timeless Watches threatens to stop supplying them with future inventory. This scenario illustrates vertical price-fixing because the manufacturer (one level of the supply chain) is dictating the minimum price at which retailers (another level of the supply chain) can sell its product.

• Consider a large national beverage distributor, RefreshCo, that supplies a popular brand of organic juice to numerous independent cafes. RefreshCo enters into agreements with these cafes, stipulating that they cannot sell the juice for more than $3.50 per bottle, even if some cafes believe they could charge more due to their prime locations or unique customer base. This is an example of vertical price-fixing because the distributor is imposing a maximum resale price on its retail partners, thereby controlling prices further down the supply chain.

• A major software developer, CodeMaster Inc., releases a new professional design suite. When signing contracts with software resellers and online retailers, CodeMaster Inc. includes a clause stating that the design suite must be sold for exactly $299, with no room for discounts or markups. The developer actively monitors prices and penalizes any reseller that deviates from this fixed price. This demonstrates vertical price-fixing because the software developer (the producer) is dictating a specific, non-negotiable price to its resellers (the retailers) for its product.