The Image Theory: RPM and the Allure of High Prices

• Author: Barak Y. Orbach
• DOI: 10.1177/0003603X1005500202
• Published date: 01 June 2010
• Date: 01 June 2010
• Subject Matter: Article

The image theory: RPM and

the allure of high prices

BY BARAK Y. ORBACH*

A century of debates over resale price maintenance (RPM) has

generated hundreds of articles that develop a handful of theories.

This article introduces a new theory—the “image theory,” which

builds on one of the oldest—yet neglected—explanations that

manufacturers offer for RPM: uniform retail prices for a branded

good maintains the product’s exclusive image, thereby luring

consumers and increasing revenues.

THE ANTITRUST BULLETIN:Vol. 55, No. 2/Summer 2010 :277

* Associate Professor of Law, University of Arizona James E. Rogers

College of Law. Materials related to this study are available at http://www

.orbach.org/rpm.

AUTHOR’S NOTE: This article builds on my article, Antitrust Vertical Myopia:

The Allure of High Prices, 50 ARIZ. L. REV. 261 (2008). The article focuses on a

peculiar human taste that motivates certain manufacturers to engage in RPM.

Scholastic refinements are also a matter of taste and, thus, I should state that I would

not have written this article unless I believed that its improvements are important to

the underlying thesis. I owe this article to the editor of this special issue, Gregory

Gundlach, who encouraged me to write it, and to our conversations that inspired

many of the improvements. This article also benefited from comments and criticism

from Carol Rose, Frances Sjoberg, and two anonymous referees. All errors are mine.

© 2010 by Federal Legal Publications, Inc.

I. INTRODUCTION

One of the most overwritten topics in antitrust law is resale price

maintenance (RPM), the practice whereby a manufacturer sets pricing

rules for retailers. A century of debates over the economic motiva-

tions and consequences of RPM has yielded hundreds of academic

works that develop around a handful of theories. Lawyers and econo-

mists seem to exhaust the topic at least until new and meaningful

empirical findings become available.1This article, however, argues

that the extensive literature and case law have largely ignored a criti-

cal explanation that manufacturers have been frequently using to

defend the practice: high prices may function as a product feature

that provides consumers with exclusivity.

The image theory that this article formulates is straightforward:

Some manufacturers are interested in uniform retail prices for their

products to maintain the image of their brands. Specifically, a subset

of manufacturers in this group believes that high prices are likely to

lure consumers and increase sales volume. This explanation is almost

as old as the RPM practice,2yet it has not been examined systemati-

cally until very recently.3If the theory appears familiar, it is because of

its intuitive nature, not because of any thorough examination in the

RPM literature.

278 :THE ANTITRUST BULLETIN:Vol. 55, No. 2/Summer 2010

1See, e.g., Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 127 S. Ct.

2705, 2725–26 (2007) (Breyer, J., dissenting) (“The Court justifies its departure

from ordinary considerations of stare decisis by pointing to a set of

arguments well known in the antitrust literature for close to half a century.”).

2In 1916, the economist Frank Taussig examined the RPM practice and

noted that manufacturers often set RPM for “identified articles” and,

specifically, “articles of prestige.” He suggested that one of the possible

explanations for RPM is the “psychology of demand” for which low prices

for “articles of prestige” do not always lead to increased demand. Frank W.

Taussig, Price Maintenance, 6 AM. ECON. REV. 170, 172 (Supp. 1916).

3See Barak Y. Orbach, Antitrust Vertical Myopia: The Allure of High Prices, 50

ARIZ. L. REV. 261 (2008). Several scholars have mentioned in passing this

explanation. The only other direct discussion of RPM illegality and luxury goods

that I am aware of is a 1995 student note. George R. Ackert, Note, An Argument

for Exempting Prestige Goods from the Per Se Ban on Resale Price Maintenance, 73 TEX.

L. REV. 1185 (1995). Mr. Ackert argued that high prices are necessary for luxury

goods and, thus, they warrant an exemption from the ban on RPM. Id. at 1205.