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

Øystein Foros, Hans Jarle Kind and Greg Shaffer ()
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Greg Shaffer: Simon Business School, University of Rochester, Postal: University of Rochester , Simon Business School, 305 Schlegel Hall, Rochester, NY 14627, USA

No 2015/32, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

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 (search for similar items in EconPapers)
JEL-codes: L13 L41 L42 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015-11-27
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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