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Turning the Page on Business Formats for Digital Platforms: Does Apple's Agency Model Soften Competition?

Author

Listed:
  • Oystein Foros
  • Hans Jarle Kind
  • Greg Shaffer

Abstract

The agency model used by Apple and other platform providers such as Google allows upstream firms (content providers like book publishers and developers of apps) to choose the retail prices of their products (RPM) subject to a fixed revenue-sharing rule. We show that (i) this leads to higher prices if the competitive pressure is higher downstream than upstream; (ii) upstream firms earn positive surplus even when platform providers have all the bargaining power; and (iii) with asymmetric business formats (where only some platform providers use the agency model), a retail most-favored-nation clause leads to retail prices that resemble the outcome under industry-wide RPM.

Suggested Citation

  • Oystein Foros & Hans Jarle Kind & Greg Shaffer, 2013. "Turning the Page on Business Formats for Digital Platforms: Does Apple's Agency Model Soften Competition?," CESifo Working Paper Series 4362, CESifo.
    • Handle: RePEc:ces:ceswps:_4362
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    References listed on IDEAS

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    Cited by:

    1. Johnson, Justin P., 2020. "The agency and wholesale models in electronic content markets," International Journal of Industrial Organization, Elsevier, vol. 69(C).
    2. Gilbert, Richard J, 2015. "E-books: A Tale of Digital Disruption," Department of Economics, Working Paper Series qt0wg6v2r6, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    3. 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..
    4. 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.
    5. Andrei Hagiu & Julian Wright, 2015. "Marketplace or Reseller?," Management Science, INFORMS, vol. 61(1), pages 184-203, January.
    6. 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).
    7. Ryoko Oki, 2015. "Fixed-fee Pricing and Entry," Economics Bulletin, AccessEcon, vol. 35(1), pages 233-240.
    8. Fangchao Xu & Xin Lu & Xiukun Zhao, 2022. "The Implications of Socially Responsible Retailing Platform on Channel Structure Choice and Product Quality Decisions," Sustainability, MDPI, vol. 14(9), pages 1-14, May.
    9. Chen, Charlie L. & Liu, Qian & Li, Jie & Wang, Leonard F.S., 2016. "Corporate social responsibility and downstream price competition with retailer's effort," International Review of Economics & Finance, Elsevier, vol. 46(C), pages 36-54.
    10. Andrei Hagiu & Julian Wright, 2019. "Controlling vs. Enabling," Management Science, INFORMS, vol. 65(2), pages 577-595, February.
    11. Chernonog, Tatyana & Avinadav, Tal & Ben-Zvi, Tal, 2015. "Pricing and sales-effort investment under bi-criteria in a supply chain of virtual products involving risk," European Journal of Operational Research, Elsevier, vol. 246(2), pages 471-475.
    12. 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.
    13. Pinar Akman & D. Daniel Sokol, 2017. "Online RPM and MFN Under Antitrust Law and Economics," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(2), pages 133-151, March.
    14. Franz Wirl, 2015. "Downstream and upstream oligopolies when retailer’s effort matters," Journal of Economics, Springer, vol. 116(2), pages 99-127, October.

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    More about this item

    Keywords

    the agency model; resale price maintenance; most-favored nation clauses; revenue sharing;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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