In GTE Sylvania, the Supreme Court acknowledged what a group of law and economics scholars had been arguing for the previous two decades: vertical restrictions that limit intrabrand competition can have a desirable effect on interbrand competition. The Court approvingly accepted the argument that the free rider problem might justify a manufacturer's use of vertical restrictions. The argument, in its simplest form, is that if a retailer provides services such as advice and demonstrations to consumers, a consumer could make use of the service and then buy the product from a "no- frills" retailer. If the manufacturer cannot control the free riding proclivities of other retailers, no retailer would find it in his interest to provide the consumer services. Vertical restrictions shield a retailer from free riding and make provision of the services profitable.
Law | Law and Economics
Victor P. Goldberg,
The Free Rider Problem, Imperfect Pricing, and the Economics of Retailing Services,
Nw. U. L. Rev.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/685