Apple's Agency Model and the Role of Resale Price Maintenance
56 Pages Posted: 28 Nov 2015
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: Suggested Citation