The Resale Price Maintenance Policy Dilemma

When a supplier forbids the resale of its product below some specified minimum price, it engages in resale price maintenance (RPM). A question arises as to whether RPM increases or decreases the relevant measure of surplus. Ordinarily, a business practice is properly deemed per se lawful or unlawful when it predictably produces net gains or net losses a very high percentage of the time. Otherwise, it is appropriate to conduct a rule of reason analysis in which the procompetitive and anticompetitive consequences of the practice are weighed. In the case of RPM, a per se approach cannot be justified on the basis of a confident prediction as to its likely effects. Surprisingly, however, given the current state of economic theory and the inability to measure welfare effects, a rule of reason analysis will similarly prove unavailing. This leads to the disconcerting conclusion that a coherent antitrust policy regarding RPM is not possible. This is shown in a simple model and some of the implications are examined.