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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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Handle: RePEc:nbr:nberwo:14588

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  1. 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.
  2. 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.
  3. Crawford, Gregory, 2005. "The Discriminatory Incentives to Bundle in the Cable Television Industry," Working paper 303, Regulation2point0.
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  6. Christopher T. Conlon & Julie Holland Mortimer, 2008. "Demand Estimation Under Incomplete Product Availability," NBER Working Papers 14315, National Bureau of Economic Research, Inc.
  7. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 159-187, February.
  8. Julie H. Mortimer, 2008. "Vertical Contracts in the Video Rental Industry -super-1," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 165-199.
  9. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  10. Chenghuan Sean Chu & Phillip Leslie & Alan Sorensen, 2006. "Nearly Optimal Pricing for Multiproduct Firms," 2006 Meeting Papers 830, Society for Economic Dynamics.
  11. Julie Holland Mortimer, 2005. "Price Discrimination, Copyright Law, and Technological Innovation: Evidence from the Introduction of DVDs," NBER Working Papers 11676, National Bureau of Economic Research, Inc.
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  14. Chenghuan Sean Chu & Phillip Leslie & Alan Sorensen, 2011. "Bundle-Size Pricing as an Approximation to Mixed Bundling," American Economic Review, American Economic Association, vol. 101(1), pages 263-303, February.
  15. 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.
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  17. Leslie M. Marx & Greg Shaffer, 2010. "Slotting Allowances and Scarce Shelf Space," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(3), pages 575-603, 09.
  18. 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.
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Cited by:
  1. Kai-Uwe Kuhn & Francine Lafontaine & Ying Fan, 2013. "Financial Constraints and Franchising Decisions," 2013 Meeting Papers 933, Society for Economic Dynamics.
  2. Joao Macieira & Pedro Pereira & Joao Vareda, 2013. "Bundling Incentives in Markets with Product Complementarities: The Case of Triple-Play," Working Papers 13-15, NET Institute.
  3. Naoaki Minamihashi, 2012. "Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks," Working Papers 12-26, Bank of Canada.
  4. Gabriel Natividad & Olav Sorenson, 2011. "Spread Too Thin: Uncertainty Shocks and Diseconomies of Scope," Working Papers 11-04, NET Institute.

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