Popular Media

Please Stop Calling RPM Price-Fixing, Part 3

The next installment in a seemingly never-ending series (see here for earlier offenders).

This time, its the California Attorney General Kamala Harris in a press release announcing a settlement with Bioelements, Inc., a Colorado-based company which sells skin care products in salons and online.  The relevant allegation, from the Complaint (Para. 10) is the following:

Beginning in mid 2009, Bioelements entered into many dozens of written contracts, entitled either “Bioelements Agreement for Authorized Professional Account Status” or “Bioelements Internet Only Accounts Agreement,” with third-party companies -several dozen of them physically located in California -that distribute and/or sell, retail to the public, Bioelements products, where such contracts contained resale price maintenance components. The “Authorized Professional Account” contract states, in part, that “Accounts shall not charge less than the Manufacturer’s Suggested Retail Price (MSRP).” The “Internet Only Accounts” contract states, in part, that “Accounts are prohibited from charging more or less than the Manufacturer’s Suggested Retail Price (MSRP).

Its an Resale Price Maintenance case.  No allegation of horizontal conspiracy.  Here’s AG Harris:

“Bioelements operated a blatant price-fixing scheme by requiring online retailers to sell its products at high prices,” Harris said. “Price manipulation harms consumers, competition and our business community. We will continue to be vigilant in protecting our markets from these kinds of abuses.”

The settlement is one of the first applications of California’s strict, pro-consumer antitrust law banning vertical price-fixing in the wake of a controversial 2007 U.S. Supreme Court decision that weakened federal law in this area. Vertical price-fixing occurs when companies along the distribution chain conspire to set the price of a product or service at an artificially high level. In California, prices must be set independently — and competitively — by distributors and retailers.

This is highly misleading on several fronts as a matter of basic antitrust economics.  I’ve covered the difference between “price-fixing” in the general antitrust sense and the use of RPM previously.  The  difference is critical because while the former is known and well understood to have pernicious competitive consequences, the same is not true for RPM.  Indeed, the existing empirical evidence (the evidence overwhelmingly shows (see also here)) suggests that a per se rule against RPM will harm consumers — bold assertions about “protecting our markets from these kinds of abuses” notwithstanding.

Yes, a vertical agreement “fixes prices” but this is a fairly transparent attempt to obfuscate the economic issues by analogizing it to a cartel and thereby make strong claims about the enforcers generating consumer welfare benefits for its constituents.  The data simply do not support that claim.  State AG offices are known to generate these press releases from time to time — or similar ones claiming that the RPM enforcement action generated $X in consumer welfare gains.  I’m not sure if they know better.  But they should.  And perhaps they do, but that knowledge is outweighed by the desire to win in the court of public opinion, in the press, and perhaps with policy makers.

There is a reasonable discussion to be had over the appropriate rule of reason treatment for RPM post-Leegin.   But the policy discussions should take place with a solid understanding of the underlying economics and evidence.   Press releases such as these undermine those efforts in my view.  Again.  I understand that the AG’s are marketing.  But this is all the more reason why groups that think seriously about antitrust, such as the ABA Antitrust Section — who certainly knows better — shouldn’t be making the same mistakes.