AAI Amicus Brief: Keep the per se Rule against RPM.
The current issue of the Antitrust Source is devoted largely to the legacy of Dr. Miles, antitrust’s most beloved zombie. (Check out our co-editor’s David Fischer’s article. He even cites to this blog. w00t!) One of the standard arguments of those who want Dr. Miles dead is that RPM is usually pro-competitive, as the incentives of the consumer and the manufacturer are aligned. RPM, or so the story goes, is just another device for deterring free riding. In their amicus brief in Leggin, Richard Brunell and Bert Foer attack the pro-competitive justifications for RPM, including deterring free riders:
Petitioner and its amici focus primarily on the “free rider” theory, contending that RPM can benefit consumers because the higher prices may induce retailers to provide pre-sale services that promote interbrand competition. This “modern” economic theory (dating back to Telser in 1960) was well known to Congress in 1975 and the Court in Sylvania, but nonetheless was rejected as a basis for permitting RPM. As Professors Comanor and Scherer point out, “there is skepticism in the economic literature about how often [free riding] occurs.” Moreover, as amici economists Klein and Murphy have noted elsewhere, the standard free rider theory for RPM is “fundamentally flawed” because it is based on “the unrealistic assumption that sole avenue of nonprice competition available to retailers is the supply of the particular services desired by the manufacturer.” The “quality certification” version of the free-rider theory, which has limited applicability on its own terms, is similarly flawed. Furthermore, even if RPM is used to prevent free riding and increase output, while it may be profit-maximizing for the manufacturer, there is no a priori reason to believe that consumers as a whole benefit because most consumers may prefer the lower-priced product without the services. Comanor & Scherer Br. 4-5; see also Econ. Br. 10 (noting that Scherer & Ross have shown “that RPM may reduce both consumer and social welfare under a plausible hypothesis regarding the impact on demand for the product”).
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