Sasquatch, the Abominable Snowman, Free Riders and other Elusive Beings

Abstract

Recent arguments by some legal scholars and attempts by the Antitrust Department of the US. Justice Department to overturn the 74-year old per se prohibition of vertical price restrictions have invoked the argument that resale price maintenance agreements (RPMs) control "free riders". This article reviews the legal history of the per se rule and examines the alleged procompetitive benefits of eliminating free riders through the use of RPM agreements by identifying the situations in which free riding is likely to occur, the circumstances in which it can be controlled by an RPM, and the social costs of using RPMs. It is concluded that true free riding is a relatively rare phenomenon and the benefit from moving to a rule of reason is insufficient to offset the social and economic costs of abandoning the per se rule.