Resale Price Maintenance: The Internet Phenomenon and Free Rider Issues

Abstract

This article looks at Internet retailing and the free rider justification often asserted for resale price maintenance (RPM). It argues that the case for RPM as a means to control free rider problems is not strengthened by the advent of Internet retailers. While the Internet may increase the occurrence of free riding for some products, it may also reduce it for others. In fact, recent marketing studies tend to dispel the popular perception that Internet retailers are frequent free riders and that free riding is necessarily harmful. These new insights call into question the general assumption that free riding must be discouraged. But even if we view free riding from a conventional perspective, RPM may not be the most effective way to induce retailer services. In view of the many benefits of Internet retailing, antitrust law should disfavor a trade restraint that inhibits its growth, 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. The article concludes by explaining why a full rule of reason analysis is unworkable and suggests a rebuttable presumption of illegality as an alternative approach.