Saturday, July 30, 2011
Posted by D. Daniel Sokol
Kenneth G. Elzinga, University of Virginia - Department of Economics and David E. Mills, University of Virginia - Department of Economics address Leegin and Procompetitive Resale Price Maintenance.
ABSTRACT: The recent Supreme Court opinion in Leegin reversed the long-standing precedent of Dr. Miles Medical. Resale price maintenance (RPM) is no longer condemned per se but instead is treated under the rule of reason. This ruling allows an inquiry as to the economic rationale and competitive consequences of a manufacturer’s RPM policy. This article reviews Leegin’s challenged pricing strategy and the business environment in which it arose. Leegin’s conduct is interpreted in light of the relevant economic literature about RPM. We conclude that Leegin’s price policy fits none of the accepted economic theories of how RPM could be anticompetitive, but instead exemplifies a theory that predicts procompetitive effects. The most compelling explanation for Leegin’s conduct is that it sought to induce efficient retail services to support Leegin’s product line and to increase interbrand competition between the company and its many competitors.