Vertical Restraints' Paradox: Justifying the Different Legal Treatment of Price and Non-Price Vertical Restraints

Abstract

Over the past fifty years antitrust theorists and economists have advanced several pro-competitive explanations for minimum resale price maintenance [RPM]. Additionally, scholars have argued that non-price vertical restraints (such as territorial exclusivity) and RPM have similar effects on price and quantity and should therefore be treated similarly by law. Nearly thirty years ago, the Supreme Court ruled that non-price vertical restraints should be subject to a rule of reason, acknowledging their pro-competitive potential. Since no explanation has been forwarded to justify treating RPM differently, there seems to be good reason to rectify the inconsistency and subject RPM to a rule of reason too. And indeed, in a case currently pending before the U.S. Supreme Court the Court has been urged to overrule the longstanding per se illegality rule presently applied to RPM. The petitioners rely, inter alia, on the similarity between RPM and non-price vertical restraints. In the following I argue that RPM is different from other vertical restraints. I show that all pro-competitive explanations for RPM suffer from a common flaw, the possibility of non-price competition, which challenges RPM's ability to achieve any of the pro-competitive goals attributed to it. I then proceed to show that non-price vertical restraints are capable of achieving the pro-competitive goals which RPM is incapable of achieving. This justifies treating RPM differently from other vertical restraints.

Keywords: antitrust, vertical restraints, RPM, vertical non-price restraints

JEL Classification: K21, L22, L42