IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v102y2012i2p686-719.html
   My bibliography  Save this article

The Use of Full-Line Forcing Contracts in the Video Rental Industry

Author

Listed:
  • Katherine Ho
  • Justin Ho
  • Julie Holland Mortimer

Abstract

Bundling is at the forefront of many policy debates as new technologies allow firms to implement more complex bundling arrangements. Realistic analyses of bundling--particularly between suppliers and retailers--require detailed data on both supply arrangements and consumer demand. We analyze firms' use of bundling as a vertical restraint (known as full-line forcing) using extensive supply and demand data from the video rental industry. Our model captures key details of the market that determine firms' contractual choices, and sheds light on the implications of these decisions. The empirical approach provides a model for how to analyze bundling when detailed data are available. (JEL D86, L14, L81, L82)

Suggested Citation

  • Katherine Ho & Justin Ho & Julie Holland Mortimer, 2012. "The Use of Full-Line Forcing Contracts in the Video Rental Industry," American Economic Review, American Economic Association, vol. 102(2), pages 686-719, April.
    • Handle: RePEc:aea:aecrev:v:102:y:2012:i:2:p:686-719
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.2.686
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: http://www.aeaweb.org/aer/data/april2012/20081326_data.zip
    File Function: dataset accompanying article
    Download Restriction: no
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Leslie M. Marx & Greg Shaffer, 2010. "Slotting Allowances and Scarce Shelf Space," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(3), pages 575-603, September.
    2. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
    3. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
    4. Julie H. Mortimer, 2008. "Vertical Contracts in the Video Rental Industry -super-1," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(1), pages 165-199.
    5. Richard A. Posner, 1975. "The Social Costs of Monopoly and Regulation," Springer Books, in: Roger D. Congleton & Kai A. Konrad & Arye L. Hillman (ed.), 40 Years of Research on Rent Seeking 2, pages 45-65, Springer.
    6. Chenghuan Sean Chu & Phillip Leslie & Alan Sorensen, 2011. "Bundle-Size Pricing as an Approximation to Mixed Bundling," American Economic Review, American Economic Association, vol. 101(1), pages 263-303, February.
    7. Julie Holland Mortimer, 2007. "Price Discrimination, Copyright Law, and Technological Innovation: Evidence from the Introduction of DVDs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(3), pages 1307-1350.
    8. Cardell, N. Scott, 1997. "Variance Components Structures for the Extreme-Value and Logistic Distributions with Application to Models of Heterogeneity," Econometric Theory, Cambridge University Press, vol. 13(2), pages 185-213, April.
    9. Schmalensee, Richard, 1982. "Antitrust and the New Industrial Economics," American Economic Review, American Economic Association, vol. 72(2), pages 24-28, May.
    10. Gregory S. Crawford & Ali Yurukoglu, 2012. "The Welfare Effects of Bundling in Multichannel Television Markets," American Economic Review, American Economic Association, vol. 102(2), pages 643-685, April.
    11. Schmalensee, Richard, 1982. "Commodity Bundling by Single-Product Monopolies," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 67-71, April.
    12. R. Preston McAfee & John McMillan & Michael D. Whinston, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 371-383.
    13. Christopher T. Conlon & Julie Holland Mortimer, 2013. "Demand Estimation under Incomplete Product Availability," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 1-30, November.
    14. A. Pakes & J. Porter & Kate Ho & Joy Ishii, 2015. "Moment Inequalities and Their Application," Econometrica, Econometric Society, vol. 83, pages 315-334, January.
    15. Salinger, Michael A, 1995. "A Graphical Analysis of Bundling," The Journal of Business, University of Chicago Press, vol. 68(1), pages 85-98, January.
    16. Justin Ho & Katherine Ho & Julie Holland Mortimer, 2012. "Analyzing the Welfare Impacts of Full-line Forcing Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 60(3), pages 468-498, September.
    17. Carbajo, Jose & de Meza, David & Seidmann, Daniel J, 1990. "A Strategic Motivation for Commodity Bundling," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 283-298, March.
    18. Chenghuan Sean Chu & Phillip Leslie & Alan Sorensen, 2006. "Nearly Optimal Pricing for Multiproduct Firms," 2006 Meeting Papers 830, Society for Economic Dynamics.
    19. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(3), pages 475-498.
    20. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 159-187.
    21. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    22. Gregory Crawford, 2008. "The discriminatory incentives to bundle in the cable television industry," Quantitative Marketing and Economics (QME), Springer, vol. 6(1), pages 41-78, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Neil Gandal & Sarit Markovich & Michael H. Riordan, 2018. "Ain't it “suite”? Bundling in the PC office software market," Strategic Management Journal, Wiley Blackwell, vol. 39(8), pages 2120-2151, August.
    2. Gayer, Amit & Shy, Oz, 2016. "A welfare evaluation of tying strategies," Research in Economics, Elsevier, vol. 70(4), pages 623-637.
    3. Kuroda, Toshifumi & Ida, Takanori & Koguchi, Teppei, 2015. "The impact of asymmetric regulation on product bundling: The case of fixed broadband and mobile communications in Japan," 2015 Regional ITS Conference, Los Angeles 2015 146318, International Telecommunications Society (ITS).
    4. Yongmin Chen & Michael H. Riordan, 2013. "Profitability Of Product Bundling," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(1), pages 35-57, February.
    5. 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.
    6. Justin Ho & Katherine Ho & Julie Holland Mortimer, 2012. "Analyzing the Welfare Impacts of Full-line Forcing Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 60(3), pages 468-498, September.
    7. Jidong Zhou, 2017. "Competitive Bundling," Econometrica, Econometric Society, vol. 85, pages 145-172, January.
    8. Andrea Mantovani, 2013. "The Strategic Effect of Bundling: A New Perspective," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(1), pages 25-43, February.
    9. Bartelt, Nadja, 2018. "Bundling in Internetmärkten: Ökonomische Besonderheiten, Wettbewerbseffekte und Regulierungsimplikationen," Ilmenau Economics Discussion Papers 120, Ilmenau University of Technology, Institute of Economics.
    10. Jeffrey Prince & Shane Greenstein, 2014. "Does Service Bundling Reduce Churn?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(4), pages 839-875, December.
    11. Jihui Chen & Qiang Fu, 2017. "Do exclusivity arrangements harm consumers?," Journal of Regulatory Economics, Springer, vol. 51(3), pages 311-339, June.
    12. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    13. Zhou, Jidong, 2021. "Mixed bundling in oligopoly markets," Journal of Economic Theory, Elsevier, vol. 194(C).
    14. Sang‐Hyun Kim & Jong‐Hee Hahn, 2022. "On the profitability of interfirm bundling in oligopolies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 657-673, August.
    15. Ashutosh Prasad & R. Venkatesh & Vijay Mahajan, 2017. "Temporal product bundling with myopic and strategic consumers: Manifestations and relative effectiveness," Quantitative Marketing and Economics (QME), Springer, vol. 15(4), pages 341-368, December.
    16. Howell, Bronwyn E & Potgieter, Petrus H., 2017. "Competition and vertical/agglomeration effects in media mergers: bagging bundle benefits," 14th ITS Asia-Pacific Regional Conference, Kyoto 2017: Mapping ICT into Transformation for the Next Information Society 168487, International Telecommunications Society (ITS).
    17. Etro, Federico, 2016. "Research in economics and industrial organization," Research in Economics, Elsevier, vol. 70(4), pages 511-517.
    18. Bronwyn E. Howell & Petrus H. Potgieter, 2018. "Bundles of trouble: Can competition law adapt to digital pricing innovation?," Competition and Regulation in Network Industries, , vol. 19(1-2), pages 3-24, March.
    19. Chun‐Hui Miao, 2010. "Tying, Compatibility And Planned Obsolescence," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 579-606, September.
    20. Anja Lambrecht & Katja Seim & Naufel Vilcassim & Amar Cheema & Yuxin Chen & Gregory Crawford & Kartik Hosanagar & Raghuram Iyengar & Oded Koenigsberg & Robin Lee & Eugenio Miravete & Ozge Sahin, 2012. "Price discrimination in service industries," Marketing Letters, Springer, vol. 23(2), pages 423-438, June.

    More about this item

    JEL classification:

    • L0 - Industrial Organization - - General

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. The Use of Full-Line Forcing Contracts in the Video Rental Industry (AER 2012) in ReplicationWiki

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:102:y:2012:i:2:p:686-719. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.