Maryland Adopts New Per Se Rule for Minimum RPM

Josh Wright —  1 May 2009

A new law in Maryland will take effect on October 1 and will re-instate the Dr. Miles rule for minimum RPM. The Wall Street Journal reports that it is a “move that could lead to lower prices for consumers across the country.” I doubt it. There are quite a few reasons to believe that shifts back to Dr. Miles will not result in lower retail prices, much less higher output (recall that the price effects are less interesting here from a consumer welfare perspective because both cartel theories and pro-competitive theories under which RPM facilitates demand-enhancing promotional services predict upward price movement). For instance, the most likely outcome of the move to per se illegality (whether at the state or federal level through legislation) is that firms contract around the rule with more costly contractual arrangements or vertical integration. To the extent that these alternative arrangements are indeed less efficient, those costs will be passed on to consumers. And of course, the empirical evidence tells us that RPM is generally output-enhancing, not anticompetitive.

Nonetheless, I suspect the WSJ article is right that we will see a number of states moving this direction. When the dust settles, and the state and federal legislation passes, I’d be willing to wager that the evidence will continue to show that prohibitions on RPM do not generate lower prices or higher output. Coincidentally, I will be a panelist at the May 21st FTC Hearings on Resale Price Maintenance discussing rule of reason analysis of RPM post-Leegin along with a representative of the Maryland State AG’s office amongst others.

Ill preview my prepared remarks here a few days in advance.