In the digital era, online distribution has become a cornerstone of modern commerce. As manufacturers and suppliers adapt to e-commerce dynamics, they increasingly implement pricing strategies that influence how their products are sold online. These measures—ranging from suggested resale prices to minimum advertised price (MAP) policies and resale price maintenance (RPM)—raise critical competition law questions about brand competition, consumer welfare, and fair market practices.
This article explores the legal and economic implications of price restrictions in online distribution, analyzing regulatory approaches in the United States, the European Union, and Taiwan. It examines how digital market characteristics—such as price transparency, cross-channel shopping behavior, and automated pricing tools—affect enforcement frameworks and business strategies.
The core challenge lies in balancing the legitimate interests of suppliers in protecting brand value and ensuring service quality against the risk of suppressing intra-brand price competition, which ultimately impacts consumers.
The Evolution of Resale Price Maintenance in Digital Markets
Resale price maintenance (RPM) occurs when a manufacturer sets a minimum price at which retailers must sell its products. Historically viewed as anti-competitive, RPM has undergone significant doctrinal shifts, particularly in the U.S., where courts have moved away from treating it as “illegal per se” toward evaluating it under the rule of reason—a case-by-case assessment of pro-competitive benefits versus anti-competitive harms.
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The 2007 Leegin Creative Leather Products, Inc. v. PSKS, Inc. decision marked a turning point in U.S. antitrust law by holding that vertical minimum RPM agreements should be analyzed under the rule of reason rather than automatically deemed illegal. This shift acknowledged that RPM can serve pro-competitive purposes, such as preventing free-riding and encouraging investment in pre-sale services.
However, this evolution does not mean RPM is now freely permissible. The ruling emphasized that each case must be evaluated based on market context, product type, and actual competitive effects—especially in online environments where consumer behavior differs significantly from traditional brick-and-mortar settings.
Addressing the Free-Riding Problem in E-Commerce
One of the most commonly cited justifications for RPM is the prevention of free-riding—a situation where some retailers invest heavily in customer education, product demonstrations, or installation services, while others undercut them by offering lower prices without providing equivalent support.
Empirical studies show that free-riding disproportionately affects physical stores, especially for complex or high-value goods like appliances, electronics, and home improvement products. For example, a consumer might visit a showroom to test a washing machine, receive expert advice, and then purchase the same model online at a lower price.
According to research cited in the EU’s 2017 e-commerce sector inquiry, nearly 26.4% of online buyers visited a physical store before completing their purchase online, yet only 1.8% bought from that same retailer’s website. This highlights a significant imbalance: offline retailers bear service costs, while online sellers capture sales without contributing to those expenses.
Yet, free-riding is not unidirectional. Consumers also use online platforms to research products before buying in-store—a phenomenon known as “webrooming.” In fact, studies suggest that nearly 60% of consumers research online before purchasing offline. This dual flow complicates the narrative that online retailers are always the beneficiaries of free-riding.
Despite this symmetry, the economic impact differs: online retailers face near-zero marginal costs for information provision, whereas physical stores incur real labor and operational costs. Thus, when customers take advantage of in-store services but buy elsewhere, it directly undermines the profitability and sustainability of brick-and-mortar businesses.
How Online Marketplaces Reshape Pricing Dynamics
The internet has transformed pricing competition through increased transparency and reduced search costs. Consumers can instantly compare prices across multiple platforms, creating intense downward pressure on margins. While this benefits shoppers in the short term, it may lead to long-term harm if retailers stop investing in service quality due to eroded profits.
Key Pricing Strategies in Online Distribution
Manufacturers employ several mechanisms to manage pricing across online channels:
- Recommended Resale Prices (RRP)
These are non-binding suggestions provided to retailers. As long as retailers retain full pricing autonomy, RRPs are generally lawful under both U.S. and EU competition laws. - Minimum Advertised Price (MAP) Policies
MAP policies restrict how low a retailer can advertise a product’s price, though actual transaction prices may still be lower. In the U.S., these are typically treated as non-price restraints and analyzed under the rule of reason—provided they don’t effectively function as RPM. - Online Resale Price Maintenance (RPM)
When manufacturers enforce minimum final sale prices—especially through threats of supply termination or financial penalties—this crosses into legally risky territory and may violate competition laws. - Dual Pricing (Wholesale Price Discrimination)
Some manufacturers charge different wholesale prices depending on whether goods are sold online or offline. The European Commission views this as a potential restriction on passive sales and a core violation under Article 101 of the Treaty on the Functioning of the European Union (TFEU), unless justified by efficiency gains.
Regulatory Approaches: U.S., EU, and Taiwan Compared
United States: The Colgate Principle and Its Limits
Under the Colgate doctrine, manufacturers have the right to unilaterally refuse to deal with retailers who do not comply with their pricing policies. This allows companies to set MAP policies without entering formal agreements—thus avoiding per se illegality under Section 1 of the Sherman Act.
However, enforcement agencies scrutinize whether these unilateral policies mask de facto agreements. If evidence shows coordinated behavior—such as consistent pricing patterns across independent retailers coupled with manufacturer pressure—the arrangement may be treated as an illegal RPM agreement.
Courts have recognized that even informal communications or repeated warnings can create coercive environments that undermine retailer independence. Therefore, while MAP policies are legally permissible in theory, their implementation must avoid any appearance of collusion.
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Moreover, although federal law no longer treats RPM as per se illegal post-Leegin, some states—including California, Maryland, and Wyoming—still prohibit it outright. This creates a fragmented legal landscape where national brands must navigate varying compliance requirements.
European Union: Consistency Over Distinction
The EU takes a more unified approach. Under Article 101 TFEU, RPM is classified as a “hardcore restriction” and excluded from block exemption regulations. However, parties can seek individual exemptions if they demonstrate net pro-competitive benefits under Article 101(3).
Notably, the EU does not distinguish between offline and online RPM in its analytical framework. The European Commission maintains that the same competition principles apply regardless of sales channel. Whether a restriction applies to physical stores or e-commerce platforms, what matters is whether it impairs the buyer’s ability to determine resale prices freely.
The 2017 EU e-commerce sector inquiry revealed that 42% of surveyed retailer-manufacturer contracts included price-related restrictions, including RRPs or explicit RPM clauses. The report also found that online price transparency facilitates tacit collusion among retailers, reducing price competition even without supplier intervention.
Additionally, the Commission has signaled strong opposition to dual pricing models that penalize online sales through higher wholesale prices. Such practices are seen as barriers to cross-border e-commerce and digital single market goals.
Taiwan: Strict Enforcement Without Digital Nuance
Taiwan’s Fair Trade Act (FTA), specifically Article 19, prohibits businesses from restricting downstream resale prices unless there is a “justifiable reason.” While this mirrors the rule-of-reason approach seen in the U.S. and EU, enforcement by the Taiwan Fair Trade Commission (TFTC) has been notably rigid.
In cases involving companies like ASUS, Sakura Corporation, and New Era Technology, the TFTC has penalized firms for enforcing online price floors—even when done unilaterally or without formal contracts. Crucially, the commission often fails to consider:
- The nature of the product (e.g., whether it requires pre-sale services)
- The extent of free-riding risks
- Differences between physical and digital retail environments
- The supplier’s intent or market context
For instance, in the Sakura case, the company was fined for pressuring online sellers to maintain prices close to its suggested levels—even though kitchen appliances often require measurement, installation, and after-sales support that pure e-tailers don’t provide.
Despite having discretion to evaluate justifiable reasons—including promoting service quality or preventing free-riding—the TFTC rarely articulates clear criteria for what constitutes sufficient evidence. This lack of guidance leaves businesses uncertain about compliance boundaries.
Frequently Asked Questions (FAQ)
What is resale price maintenance (RPM)?
Resale price maintenance occurs when a manufacturer requires retailers to sell its products at or above a specified minimum price. It restricts intra-brand competition but may be justified if it promotes inter-brand competition through improved service quality or innovation.
Is setting a minimum advertised price (MAP) illegal?
Not necessarily. In the U.S., MAP policies are generally allowed under the Colgate principle as long as they are unilateral and don’t eliminate retailer pricing freedom. However, if MAP enforcement leads to uniform final sale prices or involves implicit agreements, it may be challenged as RPM.
How does free-riding affect online vs. offline retailers?
Free-riding harms offline retailers more because they incur higher operational costs for services like product demos and expert advice. Online retailers benefit from consumer research conducted offline but often don’t reciprocate with equivalent investments—creating an uneven competitive landscape.
Can manufacturers charge different wholesale prices for online vs. offline sales?
In the EU, differential wholesale pricing based on sales channel—known as dual pricing—is considered a core restriction under vertical guidelines if it discourages online sales. Exceptions exist if justified by cost differences (e.g., installation services), but such justifications require strong evidence.
Why is Taiwan’s approach to online price restrictions considered strict?
Taiwan’s Fair Trade Commission applies Article 19 uniformly across channels without considering digital-specific factors like price transparency or consumer behavior shifts. It places heavy burden on businesses to prove “justifiable reasons” without providing clear benchmarks—leading to unpredictable enforcement outcomes.
Does the internet change how competition authorities assess RPM?
While regulators acknowledge digital market dynamics (e.g., faster price comparisons), neither the U.S. FTC nor the EU Commission has adopted fundamentally different analytical frameworks for online RPM. Both emphasize consistent application of competition principles across channels.
Toward a Balanced Regulatory Framework
As e-commerce continues to grow, regulators must refine their approaches to reflect digital realities. Blindly applying traditional rules risks either over-enforcement—chilling legitimate business strategies—or under-enforcement—allowing anti-competitive conduct to flourish.
A balanced framework should:
- Recognize that not all products pose equal free-riding risks
- Allow suppliers to protect investments in service quality through reasonable pricing policies
- Require clear evidence of anti-competitive harm before intervention
- Provide transparent guidance on what constitutes “justifiable reasons” for price restrictions
Taiwan’s competition authority has an opportunity to lead in this area by issuing sector-specific guidelines that account for differences between commoditized goods (like pet food) and high-service products (like home appliances).
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Ultimately, effective competition policy should promote both innovation and consumer choice—not merely punish deviations from idealized market models.
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