The plight of online retailers in the aftermath of Leegin: An economic analysis

Abstract

In this article, we provide an economic analysis of Leegin's impact on online discounters, specifically those who rely on discounting as an essential component of their business model. We begin with a brief discussion of Dr. Miles, Colgate, and the resulting search for proof of agreement. This leads us into an examination of the Leegin decision and its consequences for antitrust policy. We then review the economics of RPM when used for promotional purposes. We follow this with a discussion of the characterization of RPM in two recent complaints filed by online retailers. In light of ongoing litigation, we offer a suggestion for how the courts should deal with RPM. The key is to determine whether RPM is used to support a cartel or to promote the product. Finally, we address some residual concerns about the competitive effects of RPM.