Tuesday, April 18, 2006, 11:48 AM

Should Vertical Minimum Price Fixing Be Subject To The Rule Of Reason Or The Per Se Rule?

Authored by: Jason Hicks
The Supreme Court and the Federal Trade Commission consider vertical minimum price fixing to be per se illegal. Many economists and legal commentators, however, have argued that vertical minimum price fixing -- also known as minimum resale price maintenance -- should not be considered per se illegal because, in most cases, such pricing restrictions are pro-competitive. The argument is that minimum resale price mantenance induces downstream retailers to offer additional valuable services to consumers which would not be offered if competing retailers (known in antitrust jargon as "free riders") could expropriate the goodwill and resources built by the other retailer but sell at a lower price.

I recently attended a conference on Product Distribution and Marketing which highlighted this debate between government regulators and academic commentators. Professor Kenneth Elzinga, a distinguished Professor of Economics at The University of Virginia, opened the conference with a compelling argument why vertical minimum price fixing should be subject to the rule of reason. I took Professor Elzinga's Introduction to Economics class as an undergraduate at The University of Virginia.

That afternoon, FTC Commissioner Pamela Jones Harbour spoke in defense of the per se rule against vertical minimum price fixing. She pointed to the research of economist Robert L. Steiner and argued that, in her rather extensive experience enforcing antitrust laws (at both the state and federal level), she believed that the per se rule protected consumers. Commissioner Harbour had the last word on the subject, both literally and figuratively.

For a description of Commissioner Habour's reaction to Justice Thomas's "mis"characterization in Texaco, Inc. v. Dagher that all vertical price fixing is subject to the rule of reason, see this post.

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