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On the antitrust economics of the electronic books industry

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  • Gaudin, Germain
  • White, Alexander

Abstract

When Apple entered the ebook market, prices rose. A recent court decision found Apple guilty of colluding with publishers, blaming the price hike, in part, on agency agreements and prohibiting their use. Building a model to compare these with traditional wholesale agreements, we identify a single, pivotal condition that leads prices under agency to be higher than under wholesale with two-part tariffs but lower with linear pricing. Our model shows that the increase in ebook prices can be explained, instead, by heightened competition for reading devices, and it guides our understanding of when restricting agency agreements is advisable.

Suggested Citation

  • Gaudin, Germain & White, Alexander, 2014. "On the antitrust economics of the electronic books industry," DICE Discussion Papers 147 [rev.], Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  • Handle: RePEc:zbw:dicedp:147r
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    References listed on IDEAS

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    Cited by:

    1. Gokhan Guven & Eren Inci & Antonio Russo, 2017. "Apparent Competition in Two-Sided Platforms," CESifo Working Paper Series 6660, CESifo.
    2. Maximilian Maurice Gail & Phil-Adrian Klotz, 2021. "The Impact of the Agency Model on E-book Prices: Evidence from the UK," MAGKS Papers on Economics 202111, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    3. Anna D'Annunzio & Mohammed Mardan & Antonio Russo, 2020. "Multi‐part tariffs and differentiated commodity taxation," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 786-804, September.
    4. Miao, Chun-Hui, 2022. "The pricing of ancillary goods when selling on a platform," International Journal of Industrial Organization, Elsevier, vol. 83(C).
    5. E. Weyl & Michal Fabinger, 2015. "A Tractable Approach to Pass-Through Patterns," 2015 Meeting Papers 747, Society for Economic Dynamics.
    6. Liang Lu, 2017. "A Comparison of the Wholesale Model and the Agency Model in Differentiated Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 51(2), pages 151-172, September.
    7. Liang Lu, 2015. "A Comparison of the Wholesale Structure and the Agency Structure in Differentiated Markets," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2015-07v2, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    8. Babur De los Santos & Daniel P. O'Brien & Matthijs R. Wildenbeest, 2018. "Agency Pricing and Bargaining: Evidence from the E-Book Market," Working Papers 18-14, NET Institute.
    9. Sushil Bikhchandani, 2020. "Intermediated surge pricing," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(1), pages 31-50, January.
    10. Zhu Wang, 2018. "Why Do Platforms Use Ad Valorem Fees? Evaluating Two Alternative Explanations," Economic Quarterly, Federal Reserve Bank of Richmond, issue 4Q, pages 153-171.
    11. Zhu Wang & Julian Wright, 2017. "Ad valorem platform fees, indirect taxes, and efficient price discrimination," RAND Journal of Economics, RAND Corporation, vol. 48(2), pages 467-484, May.
    12. Andrei Hagiu & Julian Wright, 2019. "The Optimality of Ad Valorem Contracts," Management Science, INFORMS, vol. 65(11), pages 5219-5233, November.
    13. Johnson, Justin P., 2020. "The agency and wholesale models in electronic content markets," International Journal of Industrial Organization, Elsevier, vol. 69(C).
    14. Daniele Condorelli & Andrea Galeotti & Vasiliki Skreta, 2018. "Selling through referrals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(4), pages 669-685, October.
    15. Babur De los Santos & Matthijs R. Wildenbeest, 2017. "E-book pricing and vertical restraints," Quantitative Marketing and Economics (QME), Springer, vol. 15(2), pages 85-122, June.
    16. Zhu Wang & Julian Wright, 2018. "Should platforms be allowed to charge ad valorem fees?," Journal of Industrial Economics, Wiley Blackwell, vol. 66(3), pages 739-760, September.
    17. Anderson, Simon & Bedre-Defolie, Özlem, 2022. "Online trade platforms: Hosting, selling, or both?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 84, pages 1-15.
    18. Richard J. Gilbert, 2015. "E-Books: A Tale of Digital Disruption," Journal of Economic Perspectives, American Economic Association, vol. 29(3), pages 165-184, Summer.
    19. Justus Haucap & Torben Stühmeier, 2016. "Competition and antitrust in Internet markets," Chapters, in: Johannes M. Bauer & Michael Latzer (ed.), Handbook on the Economics of the Internet, chapter 9, pages 183-210, Edward Elgar Publishing.
    20. Cungen Zhu & Zhong Yao, 2018. "Comparison between the agency and wholesale model under the e-book duopoly market," Electronic Commerce Research, Springer, vol. 18(2), pages 313-337, June.
    21. Dingwei Gu & Zhiyong Yao & Wen Zhou, 2022. "Proportional Fee vs. Unit Fee: Competition, Welfare, and Incentives," Journal of Industrial Economics, Wiley Blackwell, vol. 70(4), pages 999-1032, December.
    22. Budzinski Oliver & Köhler Karoline Henrike, 2015. "Is Amazon The Next Google?," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 66(1), pages 263-288, January.
    23. Peter M. Kort & Sihem Taboubi & Georges Zaccour, 2020. "Pricing decisions in marketing channels in the presence of optional contingent products," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 28(1), pages 167-192, March.
    24. Simon P. Anderson & Øystein Foros & Hans Jarle Kind, 2017. "Product Functionality, Competition, And Multipurchasing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(1), pages 183-210, February.
    25. Haucap, Justus & Heimeshoff, Ulrich, 2017. "Ordnungspolitik in der digitalen Welt," DICE Ordnungspolitische Perspektiven 90, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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    More about this item

    Keywords

    Electronic Books; Antitrust in High-Tech Industries; Vertical Contracting; Wholesale vs. Agency Agreements; Media Economics;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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