AB-2010-55-2-07, Resale price maintenance: The Internet phenomenon and free rider issues

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.