The Demise of Dr. Miles; Some Troubling Consequences

• Author: Roger D. Blair
• DOI: 10.1177/0003603X0805300109
• Published date: 01 March 2008
• Date: 01 March 2008
• Subject Matter: Symposium: The Economics of the Roberts Court

THE

ANTITRUST

BULLETIN:

Vol.

53, No. l/Spring 2008 :

133

Le

demise

of

Dr. Miles:

Some

troubling

consequences

BY

ROGER

D.

BLAIR*

I.

INTRODUCTION

In 1911,

the

Supreme

Court

found

that

resale

price

maintenance

(RPM)

was

an

unreasonable

restraint

of

trade

in its

ill-advised

Dr.

Miles' decision. For

nearly

acentury, RPM

remained

a

per

se illegal

vertical price restraint

under

section 1 of

the

Sherman

AcU

But

the

Dr.

Miles

rule

came

under

fire

almost

from its

very

beginning.'

The

mod-

em

economic attack

on

Dr. Miles

began

with

Lester Telser's

penetrat-

ing

economic analysis.' Telser

showed

that

there

were

procompetitive

*

Huber

Hurst

Professor, Department of Economics, University of Florida.

AUTHOR'S NOTE: Thefinancial supportofthe Warrington

College

of Business Admin-

istration is gratefully

acknowledged.

Iwant to thank my

colleagues,

James

Fesmire,

Jill

Herndon,

John

Lopatka,

and

Richard

Romano,

for past

collaboration

and continu-

ing

support.

I

received

someusefulsuggestions from

Laura

Daugherty,

Jill

Herndon,

and

William

Page

on this

article.

They

cannot

be

blamed

for what

follows.

Dr. Miles Med. Co. v.

John

D.

Park

&Sons Co., 220

u.s.

373 (1911).

15

USc.

§1 holds in relevant

part

that "every contract, combination

...

,

or conspiracy in restraint of trade or commerce

...

is hereby declared to be illegal."

For a fascinating

account

of

our

earlier

understanding

of RPM, see

William Breit,

Resale

Price

Maintenance:

What do

Economists

Knowand Whendid

They

Know

It?, 147

J.

INST'L &THEORETICAL ECON. 72 (1991).

Lester G. Telser, Why Should Manufacturers Want

Fair

Trade?,

3 J. L. &

ECON. 86 (1960).

©2008by

Federal

LegalPublications,Inc.

134 THE ANTITRUST BULLETIN:

Vol.

53, No. l/Spring 2008

as

well

as

anticompetitive

motivations

for,

and

consequences

of,

RPM.S

Over

the

past

four decades, a

good

deal

of academic ink has

been

spilled

on

this subject. As the economic analysis of

the

causes

and

consequences of RPM

has

gotten increasingly sophisticated," gen-

eral

statements

have

become increasingly difficult to make.

One

thing

has

become

clear,

however:

no

one

can

claim

with

any

confidence

that

RPM invariably leads to a reduction in

consumer

welfare. The

results of RPM are

not

invariably anticompetitive and, therefore,

per

se illegality

would

seem

to be inappropriate. Similarly,

the

theoretical

results of RPM are

not

invariably procompetitive

either

and,

there-

fore,

per

se

legality

would

also

seem

to

be

inappropriate/

The

Supreme

Court

agreed

with

this assessment in its

Leegin

decision."

The plaintiff in

Leegin

was

aspecialty

women's

store

that

did

business

as Kay's Kloset.

It

agreed to adhere to Leegin's RPM plan,

but

then

reneged on its agreement. As a result, it was terminated as a distribu-

tor

of Leegin's "Brighton" line of

women's

shoes

and

accessories. The

trial

court

correctly refused to

permit

expert testimony

that

was

going

to explain

the

economic justification for RPM.

On

appeal,

the

Fifth

Seealso

Ward

S.

Bowman,

Jr., The

Prerequisites

and

Effects

of

Resale

Price

Maintenance, 22 U.

OIl.

L.

REv.

825 (1955),

which

also

found

benign

motives.

For a

sampling,

see

David

A.

Butz,

Vertical

Price

Controls

with

Uncer-

tain

Demand,

40 J. L. &

ECON.

433 (1997);

Roger

F.

Springer

&H.E. Frech, III,

Deterring

Fraud:

The Role of

Resale

PriceMaintenance, 59

J.

Bus. 433 (1986);

Greg

Shaffer, Slotting

Allowances

and

Resale

Price

Maintenance:

A

Comparison

of

Facilitating

Practices,

22

RAND

J.

ECON.

120 (1991);

Martin

K.

Perry

&

David

Besanko,

Resale

Price

Maintenance and Manufacturer Competition for Exclusive

Dealerships, 39 J.

INDUS.

ECON.

517

(1991);

Howard

P.

Marvel

&

Stephen

McCafferty,

Resale

Price Maintenance and Quality Certification, 15

RAND

J.

ECON.

346 (1984);

and

Yongmin

Chen,

Oligopoly

Price

Discrimination and

Resale

Price

Maintenance, 30

RAND

J.

ECON.

441 (1999).

There

is

virtually

no

empirical

work

on

the

economic

effects of RPM

on

consumer

(or social) welfare. The

empirical

analyses

of

Overstreet

and

of

Ippolito

address

the

motivation

for

using

RPM-eollusion

v.

promotion-but

do

not

assess

the

impact

of

promotional

uses

on

consumer

welfare.

See

THOMAS

R.

OVERSTREET,

JR.,

RESALE

PRICE

MAINTENANCE:

ECONOMIC

THEORIES

AND

EMPIRICAL

EVIDENCE

(1983),

and

Pauline

M. Ippolito,

Resale

Price

Mainte-

nance:

Empirical

Evidence

from

Litigation,

34 J. L. &

ECON.

263 (1991).

Leegin

Creative

Leather

Prods.,

Inc. v. PSKS,

Inc.,

127 S.

Ct.

2705

(2007).