Research Handbook on the Economics of Antitrust Law

Research Handbook on the Economics of Antitrust Law

Research Handbooks in Law and Economics series

Edited by Einer R. Elhauge

One might mistakenly think that the long tradition of economic analysis in antitrust law would mean there is little new to say. Yet the field is surprisingly dynamic and changing. The specially commissioned chapters in this landmark volume offer a rigorous analysis of the field’s most current and contentious issues.

Chapter 7: Assessing Resale Price Maintenance After Leegin

Benjamin Klein

Subjects: economics and finance, competition policy, law and economics, law - academic, competition and antitrust law, law and economics

Extract

Benjamin Klein* Antitrust evaluation of resale price maintenance under the rule of reason standard adopted in Leegin1 requires economic analysis of the likely anticompetitive effects and procompetitive benefits that may be associated with a resale price maintenance arrangement. Unfortunately, the economic focus on the prevention of retailer free-riding as the primary, if not the sole, procompetitive efficiency motivation for resale price maintenance distorts this antitrust analysis. Concentrating on free-riding not only narrows the potential procompetitive rationale for the use of resale price maintenance, but also overstates the anticompetitive significance of a manufacturer’s adoption of resale price maintenance in response to retailer complaints about price discounting. This chapter broadens the standard economic view of resale price maintenance by explaining how manufacturers often are procompetitively motivated to use resale price maintenance as a way to achieve effective distribution of their products even when there is not a retailer free-riding problem. Since retailers usually have significant discretion regarding what products they will stock and actively promote, manufacturers must create distribution arrangements where retailers expect to earn a sufficient return on their retailing assets (their shelf space and sales efforts) if they decide to distribute the manufacturer’s products. Section I demonstrates how resale price maintenance is competitively used in many circumstances because it is an economically efficient way for manufacturers to obtain desirable retail distribution by assuring retailers a sufficient expected return. Section II then applies this broader view of the economics of resale price maintenance to the factors one should consider when conducting...

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