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The Use of Full-line Forcing Contracts in the Video Rental Industry

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  • Justin Ho
  • Katherine Ho
  • Julie Holland Mortimer

Abstract

We provide an empirical study of bundling in a supply chain, referred to as fullline forcing. We use an extensive dataset on contracts between video retailers and movie distributors to analyze the choices made on both sides of the market: which distributors offer full-line forcing contracts, which retailers take them up, and whether their decisions are profitable. Most large distributors offer full-line forcing contracts in our data. Our simulations indicate that their choices of which contracts to offer are profit-maximizing. However, many retailers prefer to utilize linear pricing contracts even when our model indicates that this may not be profit-maximizing.

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Bibliographic Info

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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Publication status: published as Katherine Ho & Justin Ho & Julie Holland Mortimer, 2012. "The Use of Full-Line Forcing Contracts in the Video Rental Industry," American Economic Review, American Economic Association, vol. 102(2), pages 686-719, April.
Handle: RePEc:nbr:nberwo:14588

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  1. Christopher T. Conlon & Julie Holland Mortimer, 2010. "Demand Estimation Under Incomplete Product Availability," Boston College Working Papers in Economics, Boston College Department of Economics 799, Boston College Department of Economics, revised 07 Aug 2012.
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  14. Justin Ho & Katherine Ho & Julie Holland Mortimer, 2010. "Analyzing the Welfare Impacts of Full-line Forcing Contracts," NBER Working Papers 16318, National Bureau of Economic Research, Inc.
  15. Schmalensee, Richard, 1982. "Commodity Bundling by Single-Product Monopolies," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 25(1), pages 67-71, April.
  16. Mortimer, Julie Holland, 2007. "Price Discrimination, Copyright Law, and Technological Innovation: Evidence From The Introduction of DVDs," Scholarly Articles 3425914, Harvard University Department of Economics.
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  20. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(2), pages 371-83, May.
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Cited by:
  1. Gabriel Natividad & Olav Sorenson, 2011. "Spread Too Thin: Uncertainty Shocks and Diseconomies of Scope," Working Papers, NET Institute 11-04, NET Institute.
  2. Kai-Uwe Kuhn & Francine Lafontaine & Ying Fan, 2013. "Financial Constraints and Franchising Decisions," 2013 Meeting Papers, Society for Economic Dynamics 933, Society for Economic Dynamics.
  3. Joao Macieira & Pedro Pereira & Joao Vareda, 2013. "Bundling Incentives in Markets with Product Complementarities: The Case of Triple-Play," Working Papers, NET Institute 13-15, NET Institute.
  4. Matthew Grennan, 2013. "Price Discrimination and Bargaining: Empirical Evidence from Medical Devices," American Economic Review, American Economic Association, American Economic Association, vol. 103(1), pages 145-77, February.
  5. Naoaki Minamihashi, 2012. "Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks," Working Papers, Bank of Canada 12-26, Bank of Canada.

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