Scandinavian Working Papers in Economics
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Department of Business and Management Science, Norwegian School of Economics (NHH) Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)

No 2015/32:
Apple's Agency Model and the Role of Resale Price Maintenance

Řystein Foros (), Hans Jarle Kind () and Greg Shaffer ()

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.

Keywords: Resale price maintenance; interlocking relationships; revenue sharing; (follow links to similar papers)

JEL-Codes: L13; L41; L42; (follow links to similar papers)

39 pages, November 27, 2015

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