Abstract:The Internet phenomenon and free rider issues BY MARINA LAO* 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 Intern… Show more
“…RPM safeguards against free riding by setting a uniform resale price below which the manufacturer's product may not be sold (Areeda & Hovenkamp, ). As explained by Lao (, p. 478):In a nutshell, the classic free rider theory posits that certain product‐specific services that cannot be charged separately to consumers, such as product demonstrations and information from knowledgeable salespeople, may be essential for the effective marketing of a product. But, as long as consumers can obtain these services from one retailer but buy at a discount from another offering no such services, few retailers would be willing to provide the services, leading to an overall decrease in demand for the product.…”
Section: Resale Price Maintenancementioning
confidence: 99%
“…The free rider thesis has been used to explain the use of RPM across broad classes of distribution. This type of free riding is alleged to occur between Internet and brick‐and‐mortar retailers (Lao, ). Applying the labels “showrooming” and “webrooming,” each class of reseller has accused the other of free riding on investments in promotion of brands they both sell (Balakrishnan, Sundaresan & Zhang, ; Basak, Basu, Avittathur & Sikdar, ; Kalyanam & Tsay, ).…”
Section: Resale Price Maintenancementioning
confidence: 99%
“…The use of RPM to stifle entry and curtail advancement of Internet retailers has been cited as a contemporary example of the forestalling competition thesis (Lao, ). As Harbour and Price (, p. 232) describe:In recent years, traditional RPM justifications have been refreshed and reinvigorated for the modern and rapidly evolving e‐commerce era.…”
Section: Resale Price Maintenancementioning
confidence: 99%
“…The free rider thesis has been used to explain the use of RPM across broad classes of distribution. This type of free riding is alleged to occur between Internet and brick-and-mortar retailers (Lao, 2010). Applying the labels "showrooming" and "webrooming," each 2 For reviews, see Hollander (1966), Overstreet (1984), Gundlach et al (2017).…”
Section: Journal Of Supply Chain Managementmentioning
confidence: 99%
“…The use of RPM to stifle entry and curtail advancement of Internet retailers has been cited as a contemporary example of the forestalling competition thesis (Lao, 2010). As Harbour and Price (2010, p. 232) describe:…”
Building on research in supply chain management (SCM) that aids in the workings of society, the authors illustrate how SCM research can advance public policy and law. Using competition policy and antitrust law as an example, they consider how developments in SCM thought and practice augment economic understanding of vertical restraints involving minimum resale price maintenance (RPM). Developments affecting the organization of supply chains, firm‐level strategies for the management of retail distribution, and the interactions of supply chain participants are investigated. The findings advance knowledge of the primary procompetitive and anticompetitive theories of RPM found in competition policy and antitrust law. They also illustrate the potential of SCM to expand its reach and impact through studies that address the interplay of SCM and public policy and law.
“…RPM safeguards against free riding by setting a uniform resale price below which the manufacturer's product may not be sold (Areeda & Hovenkamp, ). As explained by Lao (, p. 478):In a nutshell, the classic free rider theory posits that certain product‐specific services that cannot be charged separately to consumers, such as product demonstrations and information from knowledgeable salespeople, may be essential for the effective marketing of a product. But, as long as consumers can obtain these services from one retailer but buy at a discount from another offering no such services, few retailers would be willing to provide the services, leading to an overall decrease in demand for the product.…”
Section: Resale Price Maintenancementioning
confidence: 99%
“…The free rider thesis has been used to explain the use of RPM across broad classes of distribution. This type of free riding is alleged to occur between Internet and brick‐and‐mortar retailers (Lao, ). Applying the labels “showrooming” and “webrooming,” each class of reseller has accused the other of free riding on investments in promotion of brands they both sell (Balakrishnan, Sundaresan & Zhang, ; Basak, Basu, Avittathur & Sikdar, ; Kalyanam & Tsay, ).…”
Section: Resale Price Maintenancementioning
confidence: 99%
“…The use of RPM to stifle entry and curtail advancement of Internet retailers has been cited as a contemporary example of the forestalling competition thesis (Lao, ). As Harbour and Price (, p. 232) describe:In recent years, traditional RPM justifications have been refreshed and reinvigorated for the modern and rapidly evolving e‐commerce era.…”
Section: Resale Price Maintenancementioning
confidence: 99%
“…The free rider thesis has been used to explain the use of RPM across broad classes of distribution. This type of free riding is alleged to occur between Internet and brick-and-mortar retailers (Lao, 2010). Applying the labels "showrooming" and "webrooming," each 2 For reviews, see Hollander (1966), Overstreet (1984), Gundlach et al (2017).…”
Section: Journal Of Supply Chain Managementmentioning
confidence: 99%
“…The use of RPM to stifle entry and curtail advancement of Internet retailers has been cited as a contemporary example of the forestalling competition thesis (Lao, 2010). As Harbour and Price (2010, p. 232) describe:…”
Building on research in supply chain management (SCM) that aids in the workings of society, the authors illustrate how SCM research can advance public policy and law. Using competition policy and antitrust law as an example, they consider how developments in SCM thought and practice augment economic understanding of vertical restraints involving minimum resale price maintenance (RPM). Developments affecting the organization of supply chains, firm‐level strategies for the management of retail distribution, and the interactions of supply chain participants are investigated. The findings advance knowledge of the primary procompetitive and anticompetitive theories of RPM found in competition policy and antitrust law. They also illustrate the potential of SCM to expand its reach and impact through studies that address the interplay of SCM and public policy and law.
Resale price maintenance (RPM) is a channel pricing strategy that restricts the price below which a reseller may sell a manufacturer’s product. More than $300 billion in U.S. sales are affected annually by RPM agreements. Adopting a marketing perspective and analyzing trends in distribution arrangements and marketing channel systems, the authors offer predictions regarding the antitrust treatment of RPM following the Supreme Court’s decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007). This research furthers the understanding of the role of the prior Colgate doctrine in establishing the existence of an RPM agreement and the impact of the new Leegin factors for assessing the competitive effects of RPM. Implications for stakeholders affected by RPM and related unilateral price policies are discussed.
In this JPPM article for the 40th Anniversary of the Journal of Public Policy … Marketing, the authors first share what is meant by “policy,” “public policy,” and “marketing and public policy” for researchers in our field. The authors then offer examples of JPPM research informing policy across different stages of the policy making process: problem identification, agenda setting, policy formulation, budgeting, implementation, and evaluation. They also discuss important sources of public policy (e.g., federal, state, and international agencies; self-regulation; the courts; nonprofits; society; industry standards; company policies; personal ethics) and their role in the marketing and public policy process. The authors then offer JPPM application examples (e.g., consumer protection; anti-trust/competition; vulnerability; diversity, equity, and inclusion; nutrition labeling; addiction, cannabis, and anti-drug research; tobacco warning labeling and education; and privacy and technology) and share ideas for developing research that contributes to the marketing and public policy discipline and in making a positive difference in society and people's lives.
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