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Dictating or Encouraging Franchisee Pricing

By Eugene F. Zelek, Jr.
February 28, 2014

A price charged by a franchisee that is too low can adversely affect other franchisees and the franchisor by discouraging the provision of pre- and post-sale services, eroding brand image and jeopardizing the ability to introduce new products by depressing price points. Although relatively rare, a franchisee also may cause marketplace problems by charging too high a price for an attractive, new product in great demand. In addition, wide variations in resale prices among franchisees may make it difficult to implement effective national or regional price advertising.

In the United States, there are two primary methods to address concerns over prices that are outside a desired range ' resale price setting and resale price encouragement.

A key question in each situation (and beyond the scope of this article) is whether there are any specific regulatory parameters ' apart from the general antitrust concerns discussed here ' that limit a supplier's ability to take action on vertical pricing issues. For example, are there franchisee, distributor or dealer protection statutes that limit supplier flexibility? (See, e.g., the Wisconsin Fair Dealership Law (WIS. STAT. '135), which prohibits termination or a change in competitive circumstances of a franchisee, distributor or dealer without cause and opportunity for cure.) Or do federal or state statutes otherwise regulate pricing in the industry involved? While not a regulatory matter, are there limitations in the franchise or distribution contract that ban or inhibit resale price initiatives?

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