Leegin Legislation Update

Josh Wright —  19 March 2010

A Senate panel approved the Leegin Bill on a voice vote (HT: Main Justice).  The story behind the link suggests that there is some Republican opposition brewing.  I suspect there will be hearings.  The Bill’s findings make the following two observations:

(3) Many economic studies showed that the rule against resale price maintenance led to lower prices and promoted consumer welfare, and;

(4) abandoning the rule against resale price maintenance will likely lead to higher prices paid by consumers and substantially harms the ability of discount retail stores to compete. For 40 years prior to 1975, Federal law permitted States to enact so-called `fair trade’ laws allowing vertical price fixing. Studies conducted by the Department of Justice in the late 1960s indicated that retail prices were between 18 and 27 percent higher in States that allowed vertical price fixing than those that did not. Likewise, a 1983 study by the Bureau of Economics of the Federal Trade Commission found that, in most cases, resale price maintenance increased the prices of products sold.

I believe both of these statements are, at best, misleading, and that Leegin was correctly decided.  From an antitrust perspective, the issue of whether RPM should be afforded per se treatment is whether the practice “always or almost always reduces output.”  Judge Douglas Ginsburg has more eloquently explained the empirical logic behind the per se standard in Polygram, noting that the issue is properly understood as whether there exists “a close family resemblance between the suspect practice and another practice that already stands convicted in the court of consumer welfare.”  The real question is whether we know that resale price maintenance — please don’t call it price-fixing — is whether the practice is so likely to generate competitive harm that it should be condemned without rule of reason inquiry.

As we’ve discussed previously, the empirical evidence on RPM simply does not satisfy this standard.  Quite the opposite, an objective assessment of the empirical evidence suggests that RPM is The findings articulated in the Bill are misleading because (1) they rely on studies from the 1960s which have been superseded by better empirical studies and an improved theoretical lens through which to understand RPM, and (2) by emphasizing the “price” test the findings fail to note that the overwhelming majority of the studies suggest that RPM increases output, a finding at odds with the anticompetitive theories.  Of course, a finding that the most likely effect of the legislation restoring the per se rule is to reduce output and consumer welfare would not, I suspect, attract the same number of votes or public support.

For interested readers,  testimony/ presentation slides at the FTC Workshop on Resale Price Maintenance are available.

The TOTM archives on RPM, including a number of great posts from Thom, are here.

2 responses to Leegin Legislation Update


    I think the relevance of state fair trade laws is limited, at best. There is a big difference between making RPM per se lawful versus subjecting it to a rule of reason standard, as Leegin does.


    Thanks for pointing us to the actual bill, Josh. As you say, focusing on the price effects of RPM misses the key point. The primary procompetitive rationales for RPM — avoidance of free-riding on point of sale services, facilitation of entry, securing of “non-free-rideable” demand-enhancing retailer services that are difficult to procure via contract — all involve higher consumer prices. But they’re still procompetitive in that they increase total sales. Focusing exclusively on price effects is myopic. (More about that in Section III.A (pp. 29-33) of this paper.)

    It’s also interesting that the text of the bill would assign liability only to RPM agreements –i.e., it would retain the Colgate loophole for unilateral pricing policies, a loophole that became pretty darn huge after Monsanto and Business Electronics. If Congress is so concerned about RPM, why not take the opportunity to close the Colgate/Monsanto/Business Electronics loophole?