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Apple's Agency Model and the Role of Resale Price Maintenance

Author

Listed:
  • Foros, Øystein

    (Dept. of Business and Management Science, Norwegian School of Economics)

  • Kind, Hans Jarle

    (Dept. of Economics, Norwegian School of Economics)

  • Shaffer, Greg

    (Simon Business School, University of Rochester)

Abstract

The agency model is a business format used by online digital platform providers (such as Apple and Google) in which retail pricing decisions are delegated to upstream content providers subject to a fixed revenue-sharing rule. In a non-cooperative setting with competition both upstream and downstream, we show that the agency model can lead to higher or lower retail prices depending on the firms' revenue-sharing splits and the relative substitution between goods and between platforms. Even if industry-wide adoption of the agency model would lead to higher profits for all firms, there may be equilibria in which it is not universally adopted. Most-favored-nation clauses (used by Apple in the controversial e-books case) can be used in such settings to increase retail prices and induce adoption.

Suggested Citation

  • Foros, Øystein & Kind, Hans Jarle & Shaffer, Greg, 2015. "Apple's Agency Model and the Role of Resale Price Maintenance," Discussion Papers 2015/32, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2015_032
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    File URL: http://hdl.handle.net/11250/2365933
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    References listed on IDEAS

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    Cited by:

    1. Carlotta Mariotto & Marianne Verdier, 2020. "Platform–merchant competition for sales services," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(4), pages 834-853, October.

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    More about this item

    Keywords

    Resale price maintenance; interlocking relationships; 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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