The Effects of Revenue-Sharing Contracts on Welfare in Vertically-Separated Markets: Evidence from the Video Rental Industry
AbstractIn this study I analyze the implications of contractual innovation in vertically-separated industries, using the example of the video rental industry. Prior to 1998, video stores obtained inventory from movie distributors using simple linear pricing contracts. In 1998, revenue-sharing contracts, which include inventory restrictions, were widely adopted. I investigate the effect of using revenue-sharing contracts on firms' profits and consumer welfare, relative to linear pricing contracts. I analyze a new panel dataset of home video retailers that includes information on individual retailers' contract and inventory choices, weekly rentals and sales, and contract terms (prices and quantity restrictions) for 1,114 movie titles and 6,594 retailers in the U. S during each week of 1998 and 1999. A structural econometric model of firms' behavior is developed and estimated, and counterfactual experiments are performed. The results indicate that total upstream and downstream profits increase by three to six percent, and consumers benefit substantially when revenue-sharing contracts are adopted. I also examine the effects of the observed quantity restrictions. I find that these restrictions serve to increase profit for upstream firms and decrease profits for downstream firms, relative to revenue-sharing contracts without inventory restrictions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 1964.
Date of creation: 2002
Date of revision:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Villas-Boas, Sofia B., 2007.
"Vertical relationships between manufacturers and retailers: inference with limited data,"
Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
qt6gz1t778, Department of Agricultural & Resource Economics, UC Berkeley.
- Sofia Berto Villas-Boas, 2007. "Vertical Relationships between Manufacturers and Retailers: Inference with Limited Data," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 625-652.
- Villas-Boas, Sofia B., 2006. "Vertical relationships between manufacturers and retailers: inference with limited data," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt0z26d2v9, Department of Agricultural & Resource Economics, UC Berkeley.
- Zhang, Wei-Guo & Fu, Junhui & Li, Hongyi & Xu, Weijun, 2012. "Coordination of supply chain with a revenue-sharing contract under demand disruptions when retailers compete," International Journal of Production Economics, Elsevier, vol. 138(1), pages 68-75.
- Villas-Boas, Sofia & Hellerstein, Rebecca, 2006.
"Identification of supply models of retailer and manufacturer oligopoly pricing,"
Elsevier, vol. 90(1), pages 132-140, January.
- Villas-Boas, Sofia & Hellerstein, Rebecca, 2004. "Identification of Supply Models of Retailer and Manufacturer Oligopoly Pricing," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt92x5f4j3, Department of Agricultural & Resource Economics, UC Berkeley.
- Villas-Boas, Sofia B. & Hellerstein, Rebecca, 2004. "Identification of supply models of retailer and manufacturer oligopoly pricing," CUDARE Working Paper Series 0993, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
- Jiang, Li, 2012. "The implications of postponement on contract design and channel performance," European Journal of Operational Research, Elsevier, vol. 216(2), pages 356-366.
- David Waterman & Sung Ji & Laura Rochet, 2007. "Enforcement and Control of Piracy, Copying, and Sharing in the Movie Industry," Review of Industrial Organization, Springer, vol. 30(4), pages 255-289, June.
- Khouja, Moutaz & Rajagopalan, Hari K. & Sharer, Elizabeth, 2010. "Coordination and incentives in a supplier-retailer rental information goods supply chain," International Journal of Production Economics, Elsevier, vol. 123(2), pages 279-289, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel).
If references are entirely missing, you can add them using this form.