Behavioral Antitrust: a New Approach to the Rule of Reason after Leegin

The Supreme Court’s recent decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., which replaced the longstanding per se rule against resale price maintenance (RPM) with a rule of reason approach, has resurrected the debate over RPM. Legal and economic proponents of this practice again point to its potential procompetitive benefits, while RPM detractors emphasize its possible anticompetitive consequences. Despite their disagreements, scholars, the Court, and the limited extant empirical data appear near-unanimous in agreeing that such arrangements can either increase or decrease efficiency. Consequently, the RPM debate predominantly revolves around theoretical assertions regarding the likely frequency and significance of RPM’s proversus anticompetitive manifestations. Importantly, however, both camps in the RPM debate assume that manufacturers are strictly rational actors, who employ only profit-maximizing arrangements. In contrast, our behavioral analysis reveals that real-world, boundedly rational manufacturers are prone to use RPM even in circumstances in which it is neither rationally procompetitive nor rationally anticompetitive. The available evidence further shows this excessive reliance on RPM diminishes over time, as biased manufacturers either learn of their mistake or are disciplined by the market. The slow demise of this practice, however, may entail efficiency losses over many years and sometimes generate competitive