The Leegin Factors—A Mixed Bag

Abstract

The Court provided Leegin factors to judge whether resale price maintenance (RPM) is pro- or anticompetitive. A welcome factor recognizes that incumbent dealers have adopted RPM when threatened by more efficient, price-cutting retailers. I show why manufacturers need promotional allowance programs to obtain desired retailer services whether prices for their brands are deeply cut or maintained. An erroneous factor asserts that interbrand competition leads to lower prices, presumably by disciplining margins at both stages. Extensive historical evidence establishes that vigorous interbrand competition produces towering retail margins, often elevating retail prices. It is intrabrand competition on leading brands that depresses retail margins while elevating those of manufacturers. After analyzing Nine West and Leegin, the article proposes a structured rule of reason procedure that importantly applies to RPM and distribution restraints alike. It commences with a market power screen and then identifies tests by which manufacturers with market power might successfully meet their burden.