More Stuff on Leegin

Thom Lambert —  1 March 2007

Antitrust Review has been covering the Leegin briefs. Good stuff here and here. Manfred Gabriel weighs in on my recent post and Josh’s comments here.

In addition, The Antitrust Source has a number of interesting pieces on Dr. Miles and Leegin, including a nice overview piece by Antitrust Reviewer, David Fischer.

Thom Lambert

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I am a law professor at the University of Missouri Law School. I teach antitrust law, business organizations, and contracts. My scholarship focuses on regulatory theory, with a particular emphasis on antitrust.

5 responses to More Stuff on Leegin

  1. 

    Steven, the economic literature of minimum resale price maintenance overwhelmingly indicates that RPM is used to increase promotional services (and NOT just those that other DEALERS can free-ride upon) and associated with increases in output. Btw, I think you are right that the “discount dealer” free riding story does not explain many of the real uses of RPM we observe in the market — though it may fit some.

    RPM can also increase promotional services even in the absence of inter-dealer free-riding. In fact, contracting for this sort of promotional service is much more common (i.e. shelf space). There are plenty of cites to this literature in the FTC/DOJ brief as well as the economists amicus brief so I will not list them here.

    The increase in output is not distributional. It is efficiency enhancing and benefits consumers. It is true that minimum RPM may be associated with higher retail prices — but the question is whether the increase in price is *worth it* because it is explained by the increase in promotional services and output. The literature clearly suggests that the answer is yes. At a minimum, the literature suggests that RPM is rarely associated with anticompetitive effects associated with cartels, i.e. reduction in output and higher prices.

    The notion that higher output and higher output created by these services are anticompetitive is not supported by the antitrust law. The output enhancing effects of promotional services are cognizable in just about every other setting as a justification.

  2. 
    Steven Donegal 2 March 2007 at 11:23 am

    But distributional efficiency seems merely a justification for price fixing. If a manufacturer won’t sell to Costco to eliminate the free riding problem, how is the consumer benefited? It seems to me that any VPRM regime that is effective will result in higher retail prices than would otherwise occur.

    I also think that in the age of Internet shopping, VPRM is a fairly anachronistic practice. Providing value add through a showroom? Please. I can find out more about a product in 10 minutes on the Web than I can by visiting any showroom. Isn’t what is really at stake here high end brand maintenance? The instances where VPRM is most effective are those where the value of the product is highly dependent on the value of the brand. Designer label clothing and bags, for example. Being able to maintain price points and availability exclusivity are critical to maintaining margins. If I can buy the current Gucci bag at Costco, that does dilute Gucci’s ability to maintain margins at its other retailers.

    One last point. The per se rule does have the effect of reducing transaction costs by imposing high violation costs on the manufacturer. If a rule of reason standard is adopted, manufacturers have less incentive not to try VPRM regimes since the cost and burden of bringing an action against them becomes sginficantly higher, both in burden of proof costs and in probabilities of prevailing.

  3. 

    To the extent VRPM can be used by mfrs to enhance distributional efficiency (e.g., by eliminating free-rider problems, etc.), consumers will be better off. VRPM agreements that reduce output (e.g., those that facilitate retailer collusion) can still be condemned under a rule of reason analysis. Overruling Dr. Miles would just allow courts to look at actual economic effects.

  4. 
    Steven Donegal 2 March 2007 at 8:51 am

    Assuming the Supremes overturn Dr. Miles and establish a rule of reason system for VRPM, can you explain how consumers are benefitted by such a result? There are clearly economic advantages to some manufacturers and retailers from a VRPM regime or they wouldn’t institute it. Why does this benefit consumers?

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