A Decision-Theoretic Rule of Reason for Minimum Resale Price Maintenance

Abstract

In holding that minimum resale price maintenance (RPM) is not per se illegal but should instead be evaluated under the rule of reason, the Leegin Court directed lower courts to craft a structured liability analysis that will separate pro- from anticompetitive instances of the practice. Thus far, courts, regulators, and commentators have proposed four types of approaches for evaluating instances of RPM: (1) approaches focused on the effects on consumer prices; (2) approaches focused on the identity of the party initiating the RPM (i.e., manufacturer or dealer(s)); (3) approaches focused on whether the product at issue is sold along with dealer services that are susceptible to free-riding; and (4) an approach, favored by the Federal Trade Commission, that mechanically applies factors the Leegin Court deemed to be relevant to the liability question. Reasoning from a decision-theoretic perspective that seeks to minimize the sum of the error costs and decision costs expected to result from the governing liability rule, this article critiques these four sets of proposed approaches. Finding each deficient, the article sets forth an alternative evaluative approach that would minimize the sum of decision and error costs, thereby maximizing the net social benefits of RPM regulation.