Competitive Resale Price Maintenance in the Absence of Free-Riding

Abstract

Resale price maintenance need not be economically justified by the prevention of free-riding. Consistent with business realities, point-of-sale retailer promotional efforts often have a significant effect on consumer demand for a manufacturer’s products; and manufacturers often use resale price maintenance as an efficient way to purchase these promotional services from retailers. Even when there is no retailer free-riding, a retailer that discounts may reduce the compensation received by other retailers for promoting the manufacturer’s products, leading other retailers to discontinue distribution or reduce the promotional efforts they devote to the sale of the manufacturer’s products. The resulting reduction in demand for the manufacturer’s products provides a procompetitive rationale for the prevention of retailer price discounting. This broadly applicable procompetitive motivation for resale price maintenance has important implications for antitrust analysis, whether the legal standard is rule of reason or per se liability.

Keywords: resale price maintenance, free-riding

JEL Classification: L42, K21