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

Foros, Øystein; Kind, Hans Jarle; Shaffer, Greg
Working paper
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URI
http://hdl.handle.net/11250/2365932
Date
2015-11-27
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  • Discussion papers (FOR) [512]
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.
Publisher
FOR
Series
Discussion paper;32/15

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