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Agency Model and Wholesale Pricing: Apple versus Amazon in the E-Book Market

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  • Franz Wirl

Abstract

Apple’s choice of the agency model (i.e., Apple demands a share from the retail price set by the publishers) when entering the e-book market was surprising because: (i) the upstream firms can accrue all rents in a simultaneous move game if it determines the retail price; and (ii) the incumbent, Amazon, used wholesale pricing arrangements. This paper compares the two different contract types, pure and mixed: one retailer opts for wholesale, the other for the agency model. Departing from a standard and symmetric oligopolistic setup of Bertrand competing retailers and producers, the model accounts for retailers having (a) a significant contribution to the final value and (b) a strategic first-mover advantage. Both conditions combined are necessary (but not sufficient) in order to explain Apple’s choice and the possibility of an asymmetric equilibrium.

Suggested Citation

  • Franz Wirl, 2018. "Agency Model and Wholesale Pricing: Apple versus Amazon in the E-Book Market," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 25(2), pages 243-264, May.
    • Handle: RePEc:taf:ijecbs:v:25:y:2018:i:2:p:243-264
    DOI: 10.1080/13571516.2017.1401282
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    Cited by:

    1. Boyuan Zhong & Houcai Shen, 2022. "Manufacturer selling mode choice for new‐version product introduction," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3316-3330, December.
    2. Hua Ke & Shujun Ye & Yutong Mo, 2022. "A comparison between the wholesale model and the agency model with different launch strategies in the book supply chain," Electronic Commerce Research, Springer, vol. 22(4), pages 1491-1513, December.
    3. Zhou, Xiaoyang & Liu, He & Li, Jialu & Zhang, Kai & Lev, Benjamin, 2023. "Channel strategies when digital platforms emerge: A systematic literature review," Omega, Elsevier, vol. 120(C).
    4. Maruyama, Masayoshi & Zennyo, Yusuke, 2020. "Platform most-favored-customer clauses and investment incentives," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    5. Boyuan Zhong & Houcai Shen, 2022. "New brand introduction and selling mode choice for online retailers with network effect," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1340-1350, July.
    6. Shangyu Pi & Yang Wang, 2020. "An E-Tailer’s Operational Strategy under Different Supply Chain Structures," Sustainability, MDPI, vol. 12(5), pages 1-20, March.
    7. Li, Pei & Tan, Dan & Wang, Guangyong & Wei, Hang & Wu, Jilan, 2021. "Retailer's vertical integration strategies under different business modes," European Journal of Operational Research, Elsevier, vol. 294(3), pages 965-975.

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