Resale Price Maintenance: explaining the controversy, and small steps towards a more nuanced policy

Over recent years, there have been important divergences in thinking among economists and lawyers about the appropriate treatment of resale price maintenance (“RPM”) under competition law. In the United States, these divergences were brought into focus by the Leegin case, in which the U.S. Supreme Court concluded that RPM should no longer be viewed as per se illegal under domestic antitrust law. In the European Union (“EU”), the debate was precipitated by the European Commission’s (“Commission”) review of its vertical restraints block exemption and guidance. Part I of this paper sets out why the legal framework in the EU amplifies what are, in reality, relatively small differences in thinking about RPM. This amplification is primarily due to the fact that the legal system asks economists, in the name of legal certainty, to draw a false dichotomy between those agreements and practices that are harmful and those that are beneficial. For practices like naked price-fixing, it is relatively easy for economists to agree on an answer. It is harder, however, for practices like RPM, which can give rise to serious anticompetitive harm, but can also prove to be indispensable for important and valuable gains in efficiency. Part II therefore provides a summary of the economic literature on RPM and emphasizes the need for further empirical research in this area. Within the current legal framework, there is not yet sufficient evidence to justify moving RPM out of the EU’s “presumed illegality” or “object” box and into a case-by-case assessment or “effect” box. It is clear, however, that this approach will sometimes presume that some RPM arrangements are illegal when in fact they either do not restrict competition or, if they do, they are nevertheless justified by their gains in efficiency. Accordingly, we would have significant reservations about a legal framework that goes beyond “presumed illegality,” for example making RPM de facto illegal or even per se illegal, as in the United States before Leegin. On the basis on these beliefs, Part III suggests several small steps that can be taken towards assessing RPM within a “presumed illegality” framework without sacrificing too much of the legal certainty that is realized under the current approach