Fair-trade law refers to the trade regulations as per which a manufacturer can fix the base or actual resale price of its goods. Outside of the U.S., the practice is referred to as “resale price maintenance” or just “price maintenance”. In America and other countries, this reselling restriction did not apply to all industries or products.
In America, the Californian government first passed these laws in 1931 to safeguard the smaller players. The law was amended in 1933 to make the rule binding on non-signors. Similar legislations later got enacted in many other states.
The law was created to protect governments and companies from countries or businesses that wanted to dump their products into markets with unfair subsidies or at low prices. Lawmakers believed allowing producers to dictate retail prices will help stabilize markets and price levels. Also, manufacturers could establish and maintain their goodwill and reputation. This is because consumers generally view inexpensive products as sub-par or low-quality.
Therefore, according to the law, if a government finds out unfair subsidies being granted, it could offset the same via higher import taxes, thereby maintaining healthy competition between local and foreign businesses. Measures against the offending parties could be taken too.
Ever since the inception of these laws, there has been a section of the market contesting these rules. The opposition rose in America in 1936; and during the 1950s, fair trade was heavily opposed and challenged by several corporations legally, in individual states.
By 1956, the supreme courts of eight American states pronounced judgment against the fair-trade law. This meant manufacturers could no longer dictate their products’ resale prices. Individuals and groups supporting the trade law tried hard to regain lost ground, but their efforts went in vain as 25 states abolished fair-trade laws by 1975. Those against this law stated such rules could give rise to monopolies.
The modern consumer market doesn’t adhere to any fair-trade laws. For instance, the consumer electronics market is confronting retail price-cutting problems. There are retailers selling brand name electronic products at prices much lower than what the manufacturer initially launched them at. In other words, sans fair-trade laws, the market and retailers have the final say on the prices goods would be sold at.