Petitioner, Leegin Creative Leather Products, Inc. (Leegin), designs, manufactures, and distributes leather goods and accessories. In 1991, Leegin began to sell belts under the brand name ‘‘Brighton.’’ The Brighton brand has now expanded into a variety of women’s fashion accessories. It is sold across the United States in over 5,000 retail establishments, for the most part independent, small boutiques and specialty stores. Leegin’s president, Jerry Kohl, also has an interest in about 70 stores that sell Brighton products. Leegin asserts that, at least for its products, small retailers treat customers better, provide customers more services, and make their shopping experience more satisfactory than do larger, often impersonal retailers. Kohl explained: ‘‘[W]e want the consumers to get a different experience than they get in Sam’s Club or in Wal-Mart. And you can’t get that kind of experience or support or customer service from a store like WalMart.’’

   Respondent, PSKS, Inc. (PSKS), operates Kay’s Kloset, a women’s apparel store in Lewisville, Texas. Kay’s Kloset buys from about 75 different manufacturers and at one time sold the Brighton brand. It first started purchasing Brighton goods from Leegin in 1995. Once it began selling the brand, the store promoted Brighton. For example, it ran Brighton advertisements and had Brighton days in the store. Kay’s Kloset became the destination retailer in the area to buy Brighton products. Brighton was the store’s most important brand and once accounted for 40 to 50 percent of its profits.

   In 1997, Leegin instituted the ‘‘Brighton Retail Pricing and Promotion Policy.’’ Following the policy, Leegin refused to sell to retailers that discounted Brighton goods below suggested prices. The policy contained an exception for products not selling well that the retailer did not plan on reordering. In the letter to retailers establishing the policy, Leegin stated:

* * * We, at Leegin, choose to break away from the pack by selling [at] specialty stores; specialty stores that can offer the customer great quality merchandise, superb service, and support the Brighton product 365 days a year on a consistent basis. * * *

   Leegin adopted the policy to give its retailers sufficient margins to provide customers the service central to its distribution strategy. It also expressed concern that discounting harmed Brighton’s brand image and reputation.

   A year after instituting the pricing policy Leegin introduced a marketing strategy known as the ‘‘Heart Store Program.’’ It offered retailers incentives to become Heart Stores, and, in exchange, retailers pledged, among other things, to sell at Leegin’s suggested prices. Kay’s Kloset became a Heart Store soon after Leegin created the program. After a Leegin employee visited the store and found it unattractive, the parties appear to have agreed that Kay’s Kloset would not be a Heart Store beyond 1998. Despite losing this status, Kay’s Kloset continued to increase its Brighton sales.

   In December 2002, Leegin discovered Kay’s Kloset had been marking down Brighton’s entire line by 20 percent. Kay’s Kloset contended it placed Brighton products on sale to compete with nearby retailers who also were undercutting Leegin’s suggested prices. Leegin, nonetheless, requested that Kay’s Kloset cease discounting. Its request refused, Leegin stopped selling to the store. The loss of the Brighton brand had a considerable negative impact on the store’s revenue from sales.

   PSKS sued Leegin in the United States District Court for the Eastern District of Texas. It alleged, among other claims, that Leegin had violated the antitrust laws by ‘‘enter-[ing] into agreements with retailers to charge only those prices fixed by Leegin.’’ Leegin planned to introduce expert testimony describing the procompetitive effects of its pricing policy. The District Court excluded the testimony, relying on the per se rule established by Dr. Miles. [In Dr. Miles Medical Co. v. John D. Park & Sons Co. (1911), the U.S. Supreme Court established the rule that it is per se illegal under the Sherman Act for a manufacturer to agree with its distributor to set the minimum price the distributor can charge for the manufacturer’s goods.] * * * The jury agreed with PSKS and awarded it $1.2 million. Pursuant to [statute], the District Court trebled the damages and reimbursed PSKS for its attorney’s fees and costs. It entered judgment against Leegin in the amount of $3,975,000.80.

   The Court of Appeals for the Fifth Circuit affirmed. * * * It was correct to explain that it remained bound by Dr. Miles ‘‘[b]ecause [the Supreme] Court has consistently applied the per se rule to [vertical minimum price-fixing] agreements.’’ * * * We granted certiorari to determine whether vertical minimum resale price maintenance agreements should continue to be treated as per se unlawful.

   Section 1 of the Sherman Act prohibits ‘‘[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States.’’ [Citation.] While §1 could be interpreted to proscribe all contracts, [citation], the Court has never ‘‘taken a literal approach to [its] language,’’ [citation]. Rather, the Court has repeated time and again that §1 ‘‘outlaw[s] only unreasonable restraints.’’ [Citation.]

   The rule of reason is the accepted standard for testing whether a practice restrains trade in violation of §1. [Citation.] ‘‘Under this rule, the fact finder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.’’ [Citation.] Appropriate factors to take into account include ‘‘specific information about the relevant business’’ and ‘‘the restraint’s history, nature, and effect.’’ [Citation.] Whether the businesses involved have market power is a further, significant consideration. [Citations.] In its design and function the rule distinguishes between restraints with anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumer’s best interest.

   The rule of reason does not govern all restraints. Some types ‘‘are deemed unlawful per se.’’ [Citation.] The per se rule, treating categories of restraints as necessarily illegal, eliminates the need to study the reasonableness of an individual restraint in light of the real market forces at work, [citation]; and, it must be acknowledged, the per se rule can give clear guidance for certain conduct. Restraints that are per se unlawful include horizontal agreements among competitors to fix prices, [citation], or to divide markets [citation].

   Resort to per se rules is confined to restraints, like those mentioned, ‘‘that would always or almost always tend to restrict competition and decrease output.’’ [Citation.] To justify a per se prohibition a restraint must have ‘‘manifestly anticompetitive’’ effects, [citation], and ‘‘lack … any redeeming virtue,’’ [citation].

   As a consequence, the per se rule is appropriate only after courts have had considerable experience with the type of restraint at issue, [citation], and only if courts can predict with confidence that it would be invalidated in all or almost all instances under the rule of reason, [citation]. It should come as no surprise, then, that ‘‘we have expressed reluctance to adopt per se rules with regard to restraints imposed in the context of business relationships where the economic impact of certain practices is not immediately obvious.’’ [Citations.] And, as we have stated, a ‘‘departure from the rule-of-reason standard must be based upon demonstrable economic effect rather than … upon formalistic line drawing.’’ [Citation.] 

   The Court has interpreted Dr. Miles Medical Co. v. John D. Park & Sons Co., [citation], as establishing a per se rule against a vertical agreement between a manufacturer and its distributor to set minimum resale prices. * * *

   The reasoning of the Court’s more recent jurisprudence has rejected the rationales on which Dr. Miles was based. By relying on the common-law rule against restraints on alienation, the Court justified its decision based on ‘‘formalistic’’ legal doctrine rather than ‘‘demonstrable economic effect,’’ [citation]. The Court in Dr. Miles relied on a treatise published in 1628, but failed to discuss in detail the business reasons that would motivate a manufacturer situated in 1911 to make use of vertical price restraints. * * *

   Dr. Miles, furthermore, treated vertical agreements a manufacturer makes with its distributors as analogous to a horizontal combination among competing distributors. [Citation.] In later cases, however, the Court rejected the approach of reliance on rules governing horizontal restraints when defining rules applicable to vertical ones. [Citations.] Our recent cases formulate antitrust principles in accordance with the appreciated differences in economic effect between vertical and horizontal agreements, differences the Dr. Miles Court failed to consider.

   The reasons upon which Dr. Miles relied do not justify a per se rule. As a consequence, it is necessary to examine, in the first instance, the economic effects of vertical agreements to fix minimum resale prices, and to determine whether the per se rule is nonetheless appropriate. [Citation.] 

   Though each side of the debate can find sources to support its position, it suffices to say here that economics literature is replete with procompetitive justifications for a manufacturer’s use of resale price maintenance. [Citations.]

   The few recent studies documenting the competitive effects of resale price maintenance also cast doubt on the conclusion that the practice meets the criteria for a per se rule. [Citations.]

   The justifications for vertical price restraints are similar to those for other vertical restraints. [Citation.] Minimum resale price maintenance can stimulate inter-brand competition—the competition among manufacturers selling different brands of the same type of product—by reducing intra-brand competition—the competition among retailers selling the same brand. The promotion of inter-brand competition is important because ‘‘the primary purpose of the antitrust laws is to protect [this type of] competition.’’ [Citation.] A single manufacturer’s use of vertical price restraints tends to eliminate intra-brand price competition; this in turn encourages retailers to invest in tangible or intangible services or promotional efforts that aid the manufacturer’s position as against rival manufacturers. Resale price maintenance also has the potential to give consumers more options so that they can choose among low-price, low-service brands; high-price, high-service brands; and brands that fall in between.

   Absent vertical price restraints, the retail services that enhance interbrand competition might be underprovided. This is because discounting retailers can free ride on retailers who furnish services and then capture some of the increased demand those services generate. [Citation.] Consumers might learn, for example, about the benefits of a manufacturer’s product from a retailer that invests in fine showrooms, offers product demonstrations, or hires and trains knowledgeable employees. [Citation.] Or consumers might decide to buy the product because they see it in a retail establishment that has a reputation for selling high-quality merchandise. [Citation.] If the consumer can then buy the product from a retailer that discounts because it has not spent capital providing services or developing a quality reputation, the high-service retailer will lose sales to the discounter, forcing it to cut back its services to a level lower than consumers would otherwise prefer. Minimum resale price maintenance alleviates the problem because it prevents the discounter from undercutting the service provider. With price competition decreased, the manufacturer’s retailers compete among themselves over services.

   Resale price maintenance, in addition, can increase interbrand competition by facilitating market entry for new firms and brands. ‘‘[N]ew manufacturers and manufacturers entering new markets can use the restrictions in order to induce competent and aggressive retailers to make the kind of investment of capital and labor that is often required in the distribution of products unknown to the consumer.’’ [Citations.] New products and new brands are essential to a dynamic economy, and if markets can be penetrated by using resale price maintenance there is a procompetitive effect.

   Resale price maintenance can also increase interbrand competition by encouraging retailer services that would not be provided even absent free riding. It may be difficult and inefficient for a manufacturer to make and enforce a contract with a retailer specifying the different services the retailer must perform. Offering the retailer a guaranteed margin and threatening termination if it does not live up to expectations may be the most efficient way to expand the manufacturer’s market share by inducing the retailer’s performance and allowing it to use its own initiative and experience in providing valuable services. [Citations.]

   While vertical agreements setting minimum resale prices can have procompetitive justifications, they may have anticompetitive effects in other cases; and unlawful price fixing, designed solely to obtain monopoly profits, is an ever present temptation. Resale price maintenance may, for example, facilitate a manufacturer cartel. [Citation.] * * *

   Vertical price restraints also ‘‘might be used to organize cartels at the retailer level.’’ [Citation.] A group of retailers might collude to fix prices to consumers and then compel a manufacturer to aid the unlawful arrangement with resale price maintenance. In that instance the manufacturer does not establish the practice to stimulate services or to promote its brand but to give inefficient retailers higher profits. Retailers with better distribution systems and lower cost structures would be prevented from charging lower prices by the agreement. [Citations.]

   A horizontal cartel among competing manufacturers or competing retailers that decreases output or reduces competition in order to increase price is, and ought to be, per se unlawful. * * *

   Resale price maintenance, furthermore, can be abused by a powerful manufacturer or retailer. A dominant retailer, for example, might request resale price maintenance to forestall innovation in distribution that decreases costs. A manufacturer might consider it has little choice but to accommodate the retailer’s demands for vertical price restraints if the manufacturer believes it needs access to the retailer’s distribution network. * * *

   Notwithstanding the risks of unlawful conduct, it cannot be stated with any degree of confidence that resale price maintenance ‘‘always or almost always tend[s] to restrict competition and decrease output.’’ [Citation.] Vertical agreements establishing minimum resale prices can have either procompetitive or anticompetitive effects, depending upon the circumstances in which they are formed. And although the empirical evidence on the topic is limited, it does not suggest efficient uses of the agreements are infrequent or hypothetical. [Citations.] As the rule would proscribe a significant amount of procompetitive conduct, these agreements appear ill suited for per se condemnation. 

   Respondent contends, nonetheless, that vertical price restraints should be per se unlawful because of the administrative convenience of per se rules. [Citation.] That argument suggests per se illegality is the rule rather than the exception. This misinterprets our antitrust law. Per se rules may decrease administrative costs, but that is only part of the equation. Those rules can be counterproductive. They can increase the total cost of the antitrust system by prohibiting procompetitive conduct the antitrust laws should encourage. * * *

***

   Respondent’s argument, furthermore, overlooks that, in general, the interests of manufacturers and consumers are aligned with respect to retailer profit margins. The difference between the price a manufacturer charges retailers and the price retailers charge consumers represents part of the manufacturer’s cost of distribution, which, like any other cost, the manufacturer usually desires to minimize. [Citations.] A manufacturer has no incentive to overcompensate retailers with unjustified margins. The retailers, not the manufacturer, gain from higher retail prices. The manufacturer often loses; inter-brand competition reduces its competitiveness and market share because consumers will ‘‘substitute a different brand of the same product.’’ [Citation.] As a general matter, therefore, a single manufacturer will desire to set minimum resale prices only if the ‘‘increase in demand resulting from enhanced service … will more than offset a negative impact on demand of a higher retail price.’’ [Citation.]* * *

   Resale price maintenance, it is true, does have economic dangers. If the rule of reason were to apply to vertical price restraints, courts would have to be diligent in eliminating their anticompetitive uses from the market. * * *

   The source of the restraint may also be an important consideration. If there is evidence retailers were the impetus for a vertical price restraint, there is a greater likelihood that the restraint facilitates a retailer cartel or supports a dominant, inefficient retailer. [Citation.] If, by contrast, a manufacturer adopted the policy independent of retailer pressure, the restraint is less likely to promote anticompetitive conduct. [Citation.] A manufacturer also has an incentive to protest inefficient retailer-induced price restraints because they can harm its competitive position.

   As a final matter, that a dominant manufacturer or retailer can abuse resale price maintenance for anticompetitive purposes may not be a serious concern unless the relevant entity has market power. If a retailer lacks market power, manufacturers likely can sell their goods through rival retailers. [Citation.] And if a manufacturer lacks market power, there is less likelihood it can use the practice to keep competitors away from distribution outlets.

   The rule of reason is designed and used to eliminate anticompetitive transactions from the market. This standard principle applies to vertical price restraints. A party alleging injury from a vertical agreement setting minimum resale prices will have, as a general matter, the information and resources available to show the existence of the agreement and its scope of operation. As courts gain experience considering the effects of these restraints by applying the rule of reason over the course of decisions, they can establish the litigation structure to ensure the rule operates to eliminate anticompetitive restraints from the market and to provide more guidance to businesses. Courts can, for example, devise rules over time for offering proof, or even presumptions where justified, to make the rule of reason a fair and efficient way to prohibit anticompetitive restraints and to promote procompetitive ones.

   For all of the foregoing reasons, we think that were the Court considering the issue as an original matter, the rule of reason, not a per se rule of unlawfulness, would be the appropriate standard to judge vertical price restraints.

***

   The judgment of the Court of Appeals is reversed, and the case is remanded for proceedings consistent with this opinion.

   It is so ordered.