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Turning the Page on Business Formats for Digital Platforms: Does Apple's Agency Model Soften Competition?

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  • Oystein Foros
  • Hans Jarle Kind
  • Greg Shaffer

Abstract

The agency model used by Apple and other platform providers such as Google allows upstream firms (content providers like book publishers and developers of apps) to choose the retail prices of their products (RPM) subject to a fixed revenue-sharing rule. We show that (i) this leads to higher prices if the competitive pressure is higher downstream than upstream; (ii) upstream firms earn positive surplus even when platform providers have all the bargaining power; and (iii) with asymmetric business formats (where only some platform providers use the agency model), a retail most-favored-nation clause leads to retail prices that resemble the outcome under industry-wide RPM.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4362.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4362

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Related research

Keywords: the agency model; resale price maintenance; most-favored nation clauses; revenue sharing;

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  8. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 36(3), pages 257-65, March.
  9. K. Sridhar Moorthy, 1988. "Strategic Decentralization in Channels," Marketing Science, INFORMS, INFORMS, vol. 7(4), pages 335-355.
  10. Anne T. Coughlan, 1985. "Competition and Cooperation in Marketing Channel Choice: Theory and Application," Marketing Science, INFORMS, INFORMS, vol. 4(2), pages 110-129.
  11. Timothy W. McGuire & Richard Staelin, 1983. "An Industry Equilibrium Analysis of Downstream Vertical Integration," Marketing Science, INFORMS, INFORMS, vol. 2(2), pages 161-191.
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