Dr. Miles Overruled!!!

Keith Sharfman —  28 June 2007

Josh, Thom, and I all predicted correctly that Dr. Miles would be overruled. We even predicted the vote count! I had hoped that Justice Breyer would join the majority, but instead he joined with Justices Ginsberg, Souter, and Stevens (as predicted) in dissent.

The opinion is here.

7 responses to Dr. Miles Overruled!!!

  1. 

    The reason this decision is so hacktackular is suggested in FN 18 of GTE Sylvania, which noted Congress’ action in 1975, when it removed the States’ ability to allow RPM. That’s pretty indisputable evidence that Congress was working on the assumption that RPM would henceforth be per se illegal.

    Congress gets to set our economic policy, not the Court. If this host of academic literature painted such a strong case for changing our economic policy as regards RPM, Congress, not the courts, is the proper branch of government to petition to enact that change.

  2. 

    “It sounds to me that Breyer is saying that the costs to consumers of RPM are well-established and quantified by empirical studies, showing that permitting RPMs raised prices on RPM goods by 19-27%. The benefits are primariy theoretical, in terms of facilitating new entry and discouraging free-riding.”

    These studies (which are old, not peer-reviewed, and of unknown quality) only compare pre- and post-RPM prices. To infer (as does Breyer does implicitly) that this is pure anticompetitive price increase begs the question. The higher prices may well signify higher quality goods and higher quality retail services (and indeed, the former may require the latter). You have to at least entertain this as an alternative hypothesis. A better (though still imperfect) test would have been to look at the outputs of the goods RPM. If output goes up when RPM is used, this supports the efficiency rationale.
    More generally, the studies cited by the majority (e.g., Ippolito & Overstreet) are highly skilled empirical analyses of RPM that reject the anticompetitive hypotheses (I also recommend that people read the PING amicus brief, which articulates nicely both (1) why RPM is efficient; and (2) why Colgate rights are costly to invoke). The benefits of min RPM are not “just theory.” The policy question here (both in terms of economics and legal administration) is *no* different from pertaining to nonoprice restraints, yet the court (and presumably Breyer) have no objection to adjudicating these restraints according to the rule of reason.

    One last question: what is the anticompetitive story for Leegin’s use of RPM? I’ve never heard a convincing one. It strains credulity that they would have pursued a case all the way to the SCOTUS to protect conduct (a dealer cartel) that harms them.

  3. 

    Market failure: Hard to see why administering the rule of reason is any harder here than elsewhere.

    Reader: Was Justice Breyer being a “hack” when he joined the unanimous decision in Khan overruling Albrecht back in the late 90s?

  4. 
    market failure, right here 28 June 2007 at 9:56 am

    I read Breyer’s dissent as a bit more nuanced than Geoff’s analysis.

    It sounds to me that Breyer is saying that the costs to consumers of RPM are well-established and quantified by empirical studies, showing that permitting RPMs raised prices on RPM goods by 19-27%. The benefits are primariy theoretical, in terms of facilitating new entry and discouraging free-riding.

    Given the difficulty of administering a rule-of-reason, Breyer sees sufficient wisdom in the Dr. Miles precent that he would not overrule it.

    That being the case, let me ask–do you think the empirical literature on RPM is flawed? Or is it irrelevant, because a rule-of-reason is sufficient to detect cases where RPM is used as a smokescreen for producer cartelization or tacit collusion?

    Personally, I’m skeptical that courts could get the latter correct, and think that its unlikely plaintiffs’ attys or enforcement agencies will even bother to bring RPM cases under the ROR.

  5. 

    Indeed, Breyer’s dissent respects the role of the judiciary — unlike the policy-making superlegislative & activist group of hacks in the majority.

  6. 

    There is indeed more here to the story. If you look at Breyer’s dissent it rests entirely on his view that stare decisis should preclude overruling settled law. That’s hardly the masterful antitrust analysis. I know Thom and others are likely preparing full discussions of the case and dissent, so I’ll wait for them, but my quick take on Breyer’s dissent is that he selectively cites the economics, agrees with the majority that resale price maintenance can be procompetitive and rests his decision entirely on his sense that this doesn’t justify overruling Dr. Miles. It’s a dissent rooted in judicial process, not antitrust economics.

  7. 
    market failure, right here 28 June 2007 at 8:59 am

    I’m surprised that Breyer was in the dissent. He understands antitrust better than any other justice, so there must be more to the story than the simple neoclassical law & econ take on it.