(), Hans Jarle Kind
() and Greg Shaffer
Øystein Foros: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Hans Jarle Kind: Dept. of Economics, Norwegian School of Economics, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Greg Shaffer: Simon Business School, University of Rochester, Postal: University of Rochester , Simon Business School, 305 Schlegel Hall, Rochester, NY 14627, USA
Abstract: The agency model is a business format used by online digital platform providers (such as Apple and Google) in which retail pricing decisions are delegated to upstream content providers subject to a fixed revenue-sharing rule. In a non-cooperative setting with competition both upstream and downstream, we show that the agency model can lead to higher or lower retail prices depending on the firms' revenue-sharing splits and the relative substitution between goods and between platforms. Even if industry-wide adoption of the agency model would lead to higher profits for all firms, there may be equilibria in which it is not universally adopted. Most-favored-nation clauses (used by Apple in the controversial e-books case) can be used in such settings to increase retail prices and induce adoption.
39 pages, November 27, 2015
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