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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 Group Munich.
  • Handle: RePEc:ces:ceswps:_4362
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp4362.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. Franz Wirl, 2015. "Downstream and upstream oligopolies when retailer’s effort matters," Journal of Economics, Springer, vol. 116(2), pages 99-127, October.

    More about this item

    Keywords

    the agency model; resale price maintenance; most-favored nation clauses; revenue sharing;

    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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