Klein, Benjamin --- "Assessing Resale Price Maintenance After Leegin" [2012] ELECD 220; in Elhauge, R. Einer (ed), "Research Handbook on the Economics of Antitrust Law" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on the Economics of Antitrust Law

Editor(s): Elhauge, R. Einer

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848440807

Section: Chapter 7

Section Title: Assessing Resale Price Maintenance After Leegin

Author(s): Klein, Benjamin

Number of pages: 27

Extract:

7 Assessing resale price maintenance after Leegin
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 arrange-
ment. 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 poten-
tial 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 dis-
cretion 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 ...