Tuesday, March 18, 2008
Posted by D. Daniel Sokol
Ittai Paldor of the University of Toronto Faculty of Law offers a contrarian take on RPM in his piece RPM as an Exclusionary Practice.
ABSTRACT: The existing explanations for resale price maintenance (RPM) are divided along a clear line, separating the pro- and anti- competitive explanations. The anti-competitive explanations suggest that RPM is introduced in furtherance of a cartel either at the retail level or at the manufacturing level. The pro-competitive explanations, by contrast, are all based on the assumption that RPM is designed to benefit a single manufacturer. A key distinction in classifying RPM systems according to the present state of the literature is thus the distinction between single-manufacturer-driven RPM and any other RPM system. This distinction is of major practical importance subsequent to the recent Supreme Court ruling in Leegin v. PSKS, which subjected RPM to scrutiny under the rule of reason rather than the per se illegality rule. In light of the existing explanations for RPM, it would seem logical to create a presumption, perhaps an irrefutable presumption, of pro-competitiveness when RPM is introduced at the genuine-initiative of a single manufacturer. The object of this paper is to challenge the consensus according to which single-manufacturer driven RPM is categorically pro-competitive, and caution against such RPM systems. I show that RPM can be used, and is likely to be used, as an exclusionary measure for the elimination of upstream competition. It thus has significant anti-competitive potential even when it is not introduced in furtherance of a cartel, which has important implications for the application of the rule of reason to the practice.