Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)
Apple's Agency Model and the Role of Resale Price Maintenance
(), 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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