Antitrust Vertical Myopia: The Allure of High Prices

Abstract:     
Low prices are one of antitrust law's traditional promises to society. Resale price maintenance (RPM), the practice whereby a manufacturer sets pricing rules for retailers, artificially inflates prices and, thus, allegedly runs afoul of antitrust laws. The practice emerged in the last quarter of the nineteenth century with the rise of advertising and has been one of the most controversial antitrust topics ever since. At the heart of the controversy lies the question of why would manufacturers ever be interested in high retail prices that seem to protect retailers' profits and hurt manufacturers. One of the oldest answers that manufacturers provide is that, for certain branded goods, high prices improve sales, while discounts harm the appeal of brands and adversely affect sales. Courts and scholars have always been aware of this argument, yet kept focusing on other explanations for the practice. This Article examines popular RPM theories, explains why manufacturers frequently use RPM to protect the appeal of their products as status goods, and argues that no per-se rule for RPM is warranted.

Number of Pages in PDF File: 27

Keywords: Antitrust, Resale Price Maintenance, RPM, Behavioral Economics, Trademarks

JEL Classification: K2, K21, L11, L15, L42

Accepted Paper Series