Some Preliminary Reactions to the Leegin Transcripts

Cite this Article
Joshua D. Wright, Some Preliminary Reactions to the Leegin Transcripts, Truth on the Market (March 27, 2007),

Transcripts in Leegin are available here (HT: Antitrust Review where David Fischer points out some of the highlights of the oral argument).  I may add some additional thoughts later after I read the whole thing again, but for now here are some first impressions:

  1. Breyer and Souter both had some interest comments on what to make of economists views on RPM (“we’re supposed to count economists?”) — with Breyer relying heavily on the fact that Professor Scherer Yamey’s 1966 book on RPM.  To the extent that Souter and Breyer expressed interest in the empirical evidence  regarding the impact of RPM, I hope his clerks have read the Economists’ Brief which surveys some of the more recent and impressive evidence on the subject of RPM.   It would be a shame if they voted in favor of per se rules based on the state of empirical evidence.
  2. Scalia was fairly impressive in his understanding of the economics.  He had the right response to the classic “how does increasing the retailer’s margin guarantee you that the retailer provides the *right* services?” question that the per se crowd is fond of asking.  In a few spots, Scalia demonstrates that he understands that some of the services we are talking about in many of these markets are non-contractible or not conducive to third party enforcement.  Contracts are incomplete.  Parties rely on self-enforcement mechanisms and court enforcement to induce services like these.  The manufacturer gives the retailer a larger margin coupled with the threat of termination to induce performance.  The answer: “well you can just contract for the services directly” denies the incompleteness of contracts.
  3. Scalia, pretty early in the oral argument, re-directed the discussion from prices to consumer welfare by suggesting that the higher retail margin is only bad for consumers if it reflects higher retail prices than otherwise (not always true in theory) and is not offset by increased services.  The question is about the services and whether we get a total increase in output — or rather, the burden is really whether the empirical evidence shows that we do not always or almost always get a total decrease in output.  On that point, it really isn’t a close question.
  4. Given Breyer and Souter’s interest in the empirics, I would have liked to see a bit more direct response to the reliance on these older studies suggesting higher prices from the lawyers with reference to current work and a level of detail greater than “there is now a consensus …”  I know, I know, we don’t want to bore the Justices with our talks of empirical studies — but they asked for it.

Shubha Ghosh at Antitrust& Competition Policy Blog thinks that at least four Justices (Breyer, Ginsburg, Stevens, Souter) are in the bag for upholding Dr. Miles.  I doubt it.  I’m not much of a vote counter, but I don’t think it will be that close.  7-2 or 6-3.  Something like that.

What do you think after reading the transcripts Thom?  Any surprises?