Resale Price Maintenance And Distributional Efficiency: Some Lessons From The Past

Resale price maintenance (RPM) has had a history similar to that of a religious war, with the legal status shifting as the various sects have had more or less influence over the courts and the political arenas. Both the RPM and anti‐RPM missionaries have overstated their cases. In theory, RPM can have both procompetitive and anticompetitive effects. Unfortunately, most of the dispute has been theoretical (theological); both sides have provided minimal empirical support for their theological conclusions. The empirical evidence, though sketchy, shows both procompetitive and anticompetitive instances of RPM. In particular, history warns that strongly organized interest groups tend to use the political process to enforce abuses of a distributional restraint that theoretically might otherwise have primarily procompetitive effects. The theoretical and empirical record does not support either per se legality or illegality for RPM in all instances. In some situations, such as for small firms in unconcentrated wholesale and retail markets and for new entrants, the probability of anticompetitive effects is negligible. In other situations, the evidentiary burden of demonstrating either the likelihood of anticompetitive effects, or of their absence, would be practically insurmountable in a litigation context. Rule‐of‐reason litigation, then, also seems to be an unwise policy choice. On balance, considering the economic, political, and legal constraints, we recommend continuing the current per se illegal standard, but with exceptions for clearly defined instances in which the probability of anticompetitive effects is minimal.