Internet Retailing and ‘Free Riding’: A Post-Leegin Antitrust Analysis

Abstract:     
This article is adapted for the Journal of Internet Law from a more in-depth article that the author has published: Resale Price Maintenance: The Internet Phenomenon and Free Rider Issues, 55 Antitrust Bulletin 473 (2010). It examines the characteristics of the Internet, online retailing, and the issues they raise pertaining to the free rider justification. It argues that, for most products, the abundance of information available online should diminish the need for in-store demonstrations or knowledgeable sales assistance and, thus, the frequency of free riding. Several recent marketing studies seem to confirm this analysis and to further suggest that free riding may be synergistic, not harmful, calling into question the usual free rider justification for resale price fixing agreements. Even if one rejects these insights and views free riding from a conventional perspective, RPM is not particularly effective in eliciting from online retailers the types of brick-and-mortar services upon which they are allegedly prone to free ride. In any event, there are other less anti-competitive means of achieving the objective of inducing dealer services. Given the many benefits of Internet retailing and the risk that prohibiting discounting would impede its growth, it is important not to allow the rule of reason to devolve into a de facto legality rule for RPM. This article concludes by suggesting a way forward that would avoid this result without running afoul of Leegin.

Number of Pages in PDF File: 15

Keywords: resale price maintenance, antitrust, vertical restraints, per se, rule of reason, market power screen, internet retailing, free riding, promotional allowances, polygram, Leegin

JEL Classification: K21, L42, L40, L14

Accepted Paper Series