Managerial Economics 13th Edition by James McGuigan,Charles Moyer,Frederick Harris

Exercise 5

Do Luxury Good Manufacturers Have a Legitimate Interest in Minimum Resale Price Maintenance: Leegin v. Kay's Kloset
Conduct an in-class debate on a recent antitrust case and whether it was decided correctly. The case is Leegin Creative Products, Inc. v. PSKS, Inc., DBA Kay's Kloset, 551, U.S. (2007). Leegin of Dallas Texas makes upscale leather accessories somewhat like Coach leather goods. Kay's Kloset had a standard-form manufacturer-retailer contract to carry Leegin's products as an independent retail distributor. When Kay's Kloset persisted in discounting its leather accessories below the suggested manufacturer's price, Leegin cut it off from further shipments. After several competing lower court decisions, for the first time ever, the U.S. Supreme Court accepted the argument that a manufacturer's business model can be so dependent on upscale positioning that a rule of reason should apply to minimum resale price maintenance agreements. In other words, such a manufacturer could legitimately refuse to deal with an independent retailer solely on the grounds that the retailer was in violation of the manufacturer's minimum suggested retail price. Such a practice had previously been ruled a per se violation of the antitrust statutes-specifically, an anticompetitive restraint of trade.
Is the defendant Leegin entitled to erode and displace dominant firms such as Coach with this upscale-positioned business model supported by minimum retail pricing constraints
Yes (here are some initial arguments to get you started): This practice causes harm to a competitor, not to competition; Leegin captured market share because it has better products, brands, management, lower cost, and good luck; this practice reduces intrabrand competition but increases interbrand competition.
No (here are some initial arguments to get you started): Minimum RPMs are an attempt at monopolization with a demonstrated intent to restrain trade; foreclosure of consumer choice is a restraint of trade.