RPM Ruling Blamed for Eliminating Discounting, Prompting Higher Prices, Fewer Choices

This posting was written by CCH Washington Correspondent John Scorza and John W. Arden.

Consumers are paying more for many products as a result of an antitrust decision issued last year by the U.S. Supreme Court, according to a group of retailers, online merchants, consumer advocates, and antitrust experts.

The diverse group met today in Washington, D.C. to discuss the anti-consumer fallout from the ruling in Leegin Creative Leather Products Inc. v. PSKS Inc. (2007-1 Trade Cases ¶75,753), which made resale price maintenance (RPM) subject to the rule of reason rather than being considered per se illegal.

Essentially Legalizing Vertical Price Fixing

For nearly a century, manufacturers were prohibited from punishing businesses for selling their products at discounted prices. But the Leegin decision overturned a 96-year-old precedent—Dr. Miles Medical Co. v. John D. Park & Sons Co.(220 U.S. 37)—and potentially changed the face of U.S. discount retailing forever, according to the American Antitrust Institute. The Leegin decision essentially legalized vertical price fixing, the AAI said.

“The Supreme Court underplayed the magnitude of the anticompetitive risks of price fixing,” said Bert Foer, President of the AAI. “The court did not account for the fact that it leads to higher prices, reduced efficiency and lost innovation in retailing.”

Price Increases, Lack of Differentiation

The result has been increased prices and a lack of price differentiation among retailers, according to Jacob Weiss, president of BabyAge.com, an online vendor of baby equipment. The price of baby supplies and toys has increased by 20 to 40 percent since last year, Weiss said. And there is almost no difference between the prices of same products offered by competing retailers.

The assembled group—which included brick-and-mortar retailer Costco as well as online auction and shopping giant eBay—called on lawmakers and regulators to reverse the court’s decision and restore the ban on resale price fixing. The attorneys general of more than 30 states formally asked lawmakers to do the same in a May letter.

Possible Courses of Action

A panel of policy makers, including FTC Commissioner Pamela Jones Harbour, offered possible courses of action to address the problems of RPM. Commissioner Harbour announced that the FTC will hold a series of four-to-six workshops exploring how to best distinguish between uses of RPM that benefit consumers and those that do not. These workshops will be held between January and March of 2009.

Representatives from the House and Senate Judiciary committees stated their intention to hold hearings to address the issues this spring.

The American Antitrust Institute is an independent, non-profit education, research, and advocacy organization based in Washington, D.C. A press release and audio recording of the press conference is available at the AAI web site.