A Reply to Professors Gould and Yamey

Abstract

In replying to Professor Gould and Professor Yamey, I must necessarily assume that the reader is generally familiar with the main outlines of my previous article. It may be useful, nevertheless, to restate the core of my argument very briefly. In the previous article, I urged the legality of certain types of price fixing and market division, both horizontal and vertical. Professors Gould and Yamey are concerned here only with one aspect of that article's thesis: my assertion that vertical price fixing or resale price maintenance, when it is not used as the tool of a cartel among resellers or among manufacturers, can only result from the manufacturer's desire to increase efficiency, and, further, that courts should accept that motivation as conclusive of the effect of such resale price maintenance. (Hereafter, unless otherwise indicated, references to resale price maintenance, or r.p.m., should be taken to indicate only this variety of manufacturer-desired r.p.m.) In its briefest terms, my argument runs as follows: No manufacturer will desire r.p.m. for the mere purpose of giving his resellers a greater-than-competitive return. The extra return would be money out of his pocket and we may safely assume that manufacturers are rarely moved to engage in that variety of philanthropy. The manufacturer who imposes r.p.m., therefore, must be attempting to purchase something for it. What he gets is usually increased activity by the reseller in providing information, promotional services, and the like. These are means of increasing distributive efficiency and should be permitted on grounds of efficient resource allocation. The case is no different than if the manufacturer owned the resellers and required his reseller employees to perform the same functions. R.p.m. is simply a partial integration and is often more efficient than full integration by ownership or contract.