Internet Minimum Advertising Price Policies
Internet Minimum Advertising Price Policies
What is an Internet Minimum Advertising Price Policy? A MAPP or an IMAP, as they are commonly called on the internet, is a contractual arrangement that requires a retailer to display a minimum advertised price despite the actual selling price. So, in short, this is a control on the advertised price, but not on the actual price of the product.
Minimum Advertised Price Policy (MAPP) allows the vendor to set a minimum price that all retailers must agree to. The retailer can charge anything they want above the minimum advertised price.
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Hello, this is Internet Lawyer John Di Giacomo with Traverse Legal, PLC and I would like to talk to you a little bit about internet minimum advertising policies today. What is an Internet Minimum Advertising Price Policy? A MAPP or an IMAP, as they are commonly called on the internet, is a contractual arrangement that requires a retailer to display a minimum advertised price despite the actual selling price. So, in short, this is a control on the advertised price, but not on the actual price of the product.
Oftentimes, you will see internet minimum advertising policies on a website such as Amazon.com, which requires you to often add a product to a cart before you can actually see the sale price of that product. This schema was created by a case that was in front of the United States Supreme Court within the last ten years called Leegin Creative Leather Products, Inc. v. PSKS, Inc. This case said that minimum advertised price policies can actually promote competition. The argument against these types of policies at the time was that they limit competition and they, in fact, may constitute antitrust because they protect a market with a certain established or fixed price. The Supreme Court said that that is actually not the case, and that if drafted correctly, these agreements can promote competition, so you have seen a large emergence of these types of policies in distributor agreements or other agreements of that sort. These agreements typically apply in the e-commerce context.
The argument is that these do not violate antitrust law, as I said, because they regulate only advertised prices and not actual prices. These agreements, in short, say that lower advertised prices cannot be used to entice a visitor to your website, and, as I said before, you actually have to add a product to your cart for the selling price, because there is a distinction between the actual sale price and the advertised price. This means that third party search engines such as Froogle, Pricewatch and PriceGrabber may often advertise the same price between different retailers because of these internet minimum advertised price polices.
And there are two camps on this issue. Obviously, there is the group of people that believe that these policies increase competition and there are those that believe that these reduce competition in the marketplace. Those in favor of IMAP or MAPP policies believe that these policies level the playing field for all e-commerce retailers, including small retailers, and encourage competition. The justification for this is that these IMAP prices don’t allow a larger retailer, for example, Best Buy, that has disparate bargaining power and therefore can buy products for a cheaper price, to advertise those products at a cheaper price to entice visitors to purchase from them and not from the smaller retailer. Additionally, those in favor of these types of policies believe that they increase the importance of soft factors, such as the ease of use of a website and customer service. These are traditional factors that are outside the realm of who has the lowest price. Also, those in favor of these types of policies believe that they reduce the marketing effectiveness of loss leaders, so those items that are priced so low that they get you to walk into the door or, in the context of e-commerce, to come to the website to purchase a product and then, in turn, you get the up-sell; somebody wants to sell you an additional or a more expensive product.
Those against internet minimum advertised price policies believe that the market should dictate prices. They go back to that kind of traditional capitalist idea that policies should not be set because the market should tell us what the policies are and the consumers should tell us what they want to pay by whether or not the purchase the product at that price. Additionally, those against these types of policies believe that retailers with bargaining power or innovative business models that reduce price because of that bargaining power or because of those business models, have lost their competitive edge. For example, the further up the retail or the manufacturing chain that you are, the lower you are going to buy the product for and then, in turn, you can resell that product for a lower price. With the advent of internet minimum advertising policies, you lose that competitive advantage because, in effect, you are required to advertise that product at the same price as your smaller competitor that does not have the benefit of the economies of scale.
Consumers also, in the mind of those against these types of policies, may be dissuaded from purchasing from websites that require an item to be added to the cart before the selling price is displayed. In effect, the argument is, “Hey! Why should I have to buy from a site where I have to add this product to the cart? That’s just an extra step. I just want to see what the price of the product is. I don’t want to have to add it to my cart. I want to move forward with purchasing this item.” And that is another argument against these types of policies.
So, the ultimate question is, “I’ve got an e-commerce store, should I establish a minimum advertised price policy?” Well, the short answer, like all lawyer answers, is who knows? This is really determined on a case-by-case basis. It requires the analysis of the pros and cons that are applicable to your specific fact situation, to your applicable products, etc. So, it’s better to contact an attorney to find out whether or not an IMAP policy or a MAPP policy is right for you.
If you would like an analysis of your current IMAP policy or if you would like to implement a Internet Minimum Advertising Policy contract, do not hesitate to contact me at Traverse Legal, PLC. Again, my name is John Di Giacomo, I am an internet lawyer and this has been a Traverse Legal Radio broadcast.
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