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

56 Pages Posted: 28 Nov 2015

See all articles by Øystein Foros

Øystein Foros

Norwegian School of Economics (NHH) - Department of Business and Management Science

Hans Jarle Kind

Norwegian School of Economics & Business Administration (NHH); CESifo (Center for Economic Studies and Ifo Institute); Norwegian School of Economics (NHH) - Department of Economics

Greg Shaffer

University of Rochester - Simon Business School

Date Written: June 1, 2016

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.

Keywords: Resale price maintenance, interlocking relationships, revenue sharing

JEL Classification: L13, L41, L42

Suggested Citation

Foros, Øystein and Kind, Hans Jarle and Shaffer, Greg, Apple's Agency Model and the Role of Resale Price Maintenance (June 1, 2016). NHH Dept. of Business and Management Science Discussion Paper No. 2015/32, Simon Business School Working Paper No. FR 15-33, Available at SSRN: https://ssrn.com/abstract=2696046 or http://dx.doi.org/10.2139/ssrn.2696046

Øystein Foros (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Hans Jarle Kind

Norwegian School of Economics & Business Administration (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway
+47 55 583 890 (Phone)
+47 55 583 901 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Greg Shaffer

University of Rochester - Simon Business School ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
299
Abstract Views
1,727
rank
125,590
PlumX Metrics