The Supremes rule resale price maintenance can be OK:. And some economists think that is just dandy.
I am not going to take a position on this particular case bcause I haven't studied it. But I believe that anti-trust took the wrong path when Bork et al brought the criterion of "consumer welfae to the fore and thus dramatically-narrowed the scope of anti-trust and eliminated ist political element. I suggest that preservation and enhancement of the market as a communications systems should be (at least) one of the criteria for judging compliance with anti-trust law. It might well be that consumers could benefit from a system of monopoly — at least in the short run — but such a benefit would be eroded by the concentration of economic (and hence political) power.
Here's what I wrote almost exactly two decades ago, while taking anti-trust in law school from a noted practitioner. I don't know if I still agree with it in every detail but the central idea — that anti-trust is about preserving & enhancing the market as a communications system, a far broader idea than "maximizing consumer welfare" — still sounds right to me. Download the PDF here.
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The Market as a Communications System
THE MARKET AS A COMMUNICATIONS SYSTEM
I believe that it was the economist Hayek who first pointed out (35 American
Economic Review 519) that a capitalist market achieves its greatest glory and utility if it is
seen as a communications system in which economic actors may signal to each other
their own perceptions of value. The market is not only a place where one can exchange
mere goods, i.e. tangible objects, though of course that happens there. The most
important thing about a market is that is a mechanism which allows/encourages the
exchange of information, i.e. of signals. (Cities are preeminently markets in the
broadest sense—see a paper from the sixties by Christopher entitled "The City as a
Mechanism for Sustaining Human Contact.") The market is a method by which a social
consensus on relative value may be reached. Our society attempts to allocate its
resources through the free-flow of a myriad of individual decisions.
FOOTNOTE 59 ALLUDES TO THIS VIEW
Would it not be helpful to view Anti-Trust Law as a means to ensure that this
exchange of information is not stunted? Without putting undue emphasis on what
may have been only the most casual wording, in his famous Footnote 59 of Socony-
Vacuum, Douglas alludes to an 'information theory' approach to anti-trust law. He
says: "Whatever economic justification particular price fixing agreements may be
thought to have, the law does not permit an inquiry into their reasonableness. They
are all banned because of their actual or potential threat to the central nervous system of
the economy." (emphasis added) The 'central nervous system' of an organism is that
part of it which handles communications between its disparate parts. What Douglas is
saying is that the market acts as a coordinator of economic activity—buyers and sellers
signal their perceptions about relative values of good and services through their offers
to buy and sell.
I couldn't agree more with the notion of anti-trust as helping in information dissemination (although I don't understand why information dissemination is not part and parcel of "consumer welfare"), but that observation doesn't support a ban on resale price maintenance (RPM). Rather it supports (what I know of) this SCOTUS decision.
RPM is frequently used to support information dissemination. An illustration used way back when in my anti-trust class (UW, Professor Keith Leffler, circa 1981) was HP calculators, which use reverse polish notation (RPN) to manipulate data, with the counter-intuitive result that there is no "=" key on the calculator. It takes a wee bit of explanation to appreciate the superiority of RPN, an explanation that is costly for the reseller to provide but can be encouraged by HP insisting on a minimum resale price for their calculators, providing resellers with an additional profit incentive to provide the explanation. That profit incentive is seriously harmed when one can get the explanation from the high end reseller and cross the street to WalMart to buy the thing a t 20% off.
Here, RPM serves the old fashioned notion of information dissemination by supporting the effort to provide actual information about the product.
Posted by: Scott Wood | Jun 28, 2007 at 05:19 PM