Agency Model and Wholesale Pricing: Apple versus Amazon in the E-Book Market

Franz Wirl

International Journal of the Economics of Business, 2018, vol. 25, issue 2, 243-264

Abstract: Apple’s choice of the agency model (i.e., Apple demands a share from the retail price set by the publishers) when entering the e-book market was surprising because: (i) the upstream firms can accrue all rents in a simultaneous move game if it determines the retail price; and (ii) the incumbent, Amazon, used wholesale pricing arrangements. This paper compares the two different contract types, pure and mixed: one retailer opts for wholesale, the other for the agency model. Departing from a standard and symmetric oligopolistic setup of Bertrand competing retailers and producers, the model accounts for retailers having (a) a significant contribution to the final value and (b) a strategic first-mover advantage. Both conditions combined are necessary (but not sufficient) in order to explain Apple’s choice and the possibility of an asymmetric equilibrium.

Date: 2018
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Citations: View citations in EconPapers (11)

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DOI: 10.1080/13571516.2017.1401282

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