Resale Price Maintenance: The Internet Phenomenon and 'Free Rider' Issues
36 Pages Posted: 3 Mar 2010 Last revised: 31 Jan 2014
Date Written: March 1, 2010
Leegin and the literature on resale price maintenance (RPM) have largely overlooked the Internet phenomenon despite the fact that it has substantially changed the way many consumers shop. This paper looks at the characteristics of Internet retailing and explores how they may affect the free rider justification often asserted for RPM. I argue that the case for RPM as a means to control free rider problems is not strengthened by the advent of Internet retailers.
While the ease of Internet searches may increase the occurrence of free-riding for sensory-sensitive products, the wealth of information available online likely reduces the need for in-person retailer services and, hence, free riding on brick-and-mortar store services for other products. In fact, recent marketing studies suggest that, contrary to popular assumptions, free riding occurs more often in the opposite direction - customers browsing Internet retailers’ websites but buying from brick-and-mortar stores - yet Internet retailers are opponents, not supporters, of RPM. Recent research also suggests that free riding between brick-and-mortar and Internet retailers can be synergistic, benefiting both types of retailers. These new insights call into question the general assumptions that Internet retailers are frequent free riders and that free-riding must be discouraged.
Even if we view free-riding from a conventional perspective, RPM may not be the most effective and efficient way to induce retailer services for reasons explored in the paper. In view of the many benefits of Internet retailing, antitrust law should disfavor a trade restraint which inhibits its growth by prohibiting discounting (such as RPM) if there are alternative means of promoting retailer services that do not present similar risks. Promotional allowances could be such an alternative. I conclude by explaining why a full rule of reason analysis is unworkable and suggest a rebuttable presumption of illegality as an alternative approach.
Keywords: Internet Retailing, Internet Shopping, Online Retailers, Resale Price Maintenance, Rule Of Reason, Leegin, Free Riding, Free Rider, Promotional Allowances, Less Restrictive Alternatives, Vertical Restraints, Per Se Rule, Dr. Miles, Antitrust
JEL Classification: K21, L42, L40, l14
Suggested Citation: Suggested Citation