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Welfare Effects of Full-line Forcing Contracts in the Video Rental Industry

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Author Info
Justin Ho
Katherine Ho
Julie Holland Mortimer
Abstract

An extensive theoretical literature on bundling examines its potential efficiency and anti-competitive effects. In this paper, we provide an empirical study of bundling in a supply chain, referred to as full-line forcing. Using an extensive dataset on contracts between video retailers and movie distributors, we identify and measure three effects of full-line forcing: market coverage, leverage, and efficiency. We estimate a structural model of demand and the cost of holding inventory. Using the estimated parameters, we examine the effects of delaying the introduction of full-line forcing contracts. We find that delay results in a welfare loss for firms and consumers.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14588.

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Date of creation: Dec 2008
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Handle: RePEc:nbr:nberwo:14588

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L0 - Industrial Organization - - General

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  1. Salinger, Michael A, 1995. "A Graphical Analysis of Bundling," Journal of Business, University of Chicago Press, vol. 68(1), pages 85-98, January. [Downloadable!] (restricted)
  2. Schmalensee, Richard, 1982. "Antitrust and the New Industrial Economics," American Economic Review, American Economic Association, vol. 72(2), pages 24-28, May. [Downloadable!] (restricted)
  3. Julie Holland Mortimer, 2007. "Price Discrimination, Copyright Law, and Technological Innovation: Evidence From The Introduction of DVDs," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 1307-1350, 08. [Downloadable!] (restricted)
  4. Carbajo, Jose & de Meza, David & Seidmann, Daniel J, 1990. "A Strategic Motivation for Commodity Bundling," Journal of Industrial Economics, Blackwell Publishing, vol. 38(3), pages 283-98, March. [Downloadable!] (restricted)
  5. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
  6. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August. [Downloadable!] (restricted)
  7. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
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  8. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May. [Downloadable!] (restricted)
  9. Gregory Crawford, 2008. "The discriminatory incentives to bundle in the cable television industry," Quantitative Marketing and Economics, Springer, vol. 6(1), pages 41-78, March. [Downloadable!] (restricted)
  10. Posner, Richard A, 1975. "The Social Costs of Monopoly and Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 807-27, August. [Downloadable!] (restricted)
  11. Julie H. Mortimer, 2008. "Vertical Contracts in the Video Rental Industry," Review of Economic Studies, Blackwell Publishing, vol. 75(1), pages 165-199, 01. [Downloadable!] (restricted)
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