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Editor: D. Daniel Sokol
University of Florida
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Thursday, April 12, 2007

The Vertical Restraints' Paradox: Justifying the Different Legal Treatment of Price and Non-Price Vertical Restraints

Posted by D. Daniel Sokol

Shubha will be happy to know that I found a recent working paper that agrees with him on the need for per se illegality treatment of RPM.  Ittai Paldor, an SJD student at U Toronto has the following working paper out on SSRN entitled The Vertical Restraints' Paradox: Justifying the Different Legal Treatment of Price and Non-Price Vertical Restraints.

Abstract: In a case currently pending before the U.S. Supreme Court the court has been urged to overrule the longstanding per se illegality rule presently applicable to minimum resale price maintenance, or RPM. Over the past fifty years antitrust theorists and economists have advanced several pro-competitive explanations for RPM. Additionally, scholars have argued that non-price vertical restraints (such as territorial exclusivity) and RPM have similar effects on price and quantity and should therefore be treated similarly by law. Nearly thirty years ago, the Supreme Court ruled that non-price vertical restraints should be subject to a rule of reason, acknowledging their pro-competitive potential. Since no explanation has been forwarded to justify treating RPM differently, there seems to be good reason to rectify the inconsistency and subject RPM to a rule of reason too. And indeed, the Court has recently granted Certiorari, signaling at least a willingness to reconsider its position. In the following I argue that legal policymakers' current approach is economically justified. I show that all pro-competitive explanations for RPM suffer from a common flaw, the possibility of non-price competition, which challenges RPM's ability to achieve any of the pro-competitive goals attributed to it. I then proceed to show that non-price vertical restraints are capable of achieving the pro-competitive goals which RPM is incapable of achieving. This justifies both applying a per se illegality rule to RPM and applying a different rule, namely a rule of reason, to other vertical restraints.

http://lawprofessors.typepad.com/antitrustprof_blog/2007/04/the_vertical_re.html

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Comments

Well, I suppose someone, somewhere must hold every opinion. At first I thought you were suggesting per se LEGALITY for RPM--and I was going to tell you that lots of people hold that opinion. But if it's corroboration for per se illegality you're looking for, I suppose an SJD student at Toronto is probably as good as you can get.

Posted by: geoff | Apr 12, 2007 11:31:22 AM

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