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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.

Suggested Citation

  • Justin Ho & Katherine Ho & Julie Holland Mortimer, 2008. "The Use of Full-line Forcing Contracts in the Video Rental Industry," NBER Working Papers 14588, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:14588 Note: IO
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    References listed on IDEAS

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    Cited by:

    1. Ho, Katherine & Rosen, Adam M., 2015. "Partial Identification in Applied Research: Benefits and Challenges," CEPR Discussion Papers 10883, C.E.P.R. Discussion Papers.
    2. Joan Calzada & Tommaso M. Valletti, 2012. "Intertemporal Movie Distribution: Versioning When Customers Can Buy Both Versions," Marketing Science, INFORMS, vol. 31(4), pages 649-667, July.
    3. Naoaki Minamihashi, 2012. "Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks," Staff Working Papers 12-26, Bank of Canada.
    4. de Roos, Nicolas & McKenzie, Jordi, 2014. "Cheap Tuesdays and the demand for cinema," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 93-109.
    5. Zhou, Jidong, 2015. "Competitive Bundling," MPRA Paper 68358, University Library of Munich, Germany.
    6. Gabriel Natividad & Olav Sorenson, 2011. "Spread Too Thin: Uncertainty Shocks and Diseconomies of Scope," Working Papers 11-04, NET Institute.
    7. Chen, Chia-Wen, 2014. "Estimating the foreclosure effect of exclusive dealing: Evidence from the entry of specialty beer producers," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 47-64.
    8. 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.
    9. Matthew Grennan, 2013. "Price Discrimination and Bargaining: Empirical Evidence from Medical Devices," American Economic Review, American Economic Association, vol. 103(1), pages 145-177, February.
    10. Li, Jia & Moul, Charles C., 2015. "Who should handle retail? Vertical contracts, customer service, and social welfare in a Chinese mobile phone market," International Journal of Industrial Organization, Elsevier, vol. 39(C), pages 29-43.
    11. Bonnet, Céline & Bouamra-Mechemache, Zohra & Richards, Timothy J., 2017. "Complementarity and Bargaining Power," TSE Working Papers 16-772, Toulouse School of Economics (TSE).

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    JEL classification:

    • L0 - Industrial Organization - - General

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