Antitrust Vertical Myopia: The Allure of High Prices

27 Pages Posted: 30 Nov 2007 Last revised: 30 Jun 2008

Barak Orbach

University of Arizona

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.

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

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

Suggested Citation

Orbach, Barak, Antitrust Vertical Myopia: The Allure of High Prices. Arizona Law Review, Vol. 50, pp. 261-287, 2008; Arizona Legal Studies Discussion Paper No. 07-25. Available at SSRN: https://ssrn.com/abstract=1033440

Barak Orbach (Contact Author)

University of Arizona ( email )

1201 E. Speedway Blvd.
Tuscon, AZ 85721-0176
United States
520-626-7256 (Phone)
520.858.0025 (Fax)

HOME PAGE: http://www.orbach.org

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