The manufacturer of South Face sells jackets to retail stores for $120 each, and it requires the retail stores to charge customers $150 per jacket. Any retailer that charges less than $150 would violate its contract with South Face. What do economists call this business practice?

Question

Quizplus · Accepted Answer

The business practice described in the question is resale price maintenance, which is when a manufacturer sets a minimum price that retailers must sell their products at. This is done in order to protect the manufacturer's brand and reputation by preventing retailers from undercutting each other and potentially devaluing the product. Predatory pricing is when a company sets prices so low that competitors cannot compete and are driven out of business, tying is when a company requires a customer to purchase one product in order to obtain another product, and leverage generally refers to the use of debt or other financial instruments to increase the potential return of an investment.

The Manufacturer of South Face Sells Jackets to Retail Stores