The Use of Full-Line Forcing Contracts in the Video Rental Industry
44 Pages Posted: 14 May 2009 Last revised: 5 May 2010
Date Written: December 17, 2008
We provide an empirical study of bundling in a supply chain, referred to as full-line forcing. We use an extensive dataset on contracts between video retailers and movie distributors to analyze the choices made on both sides of the market: which distributors offer full-line forcing contracts, which retailers take them up, and whether their decisions are profitable. Most large distributors offer full-line forcing contracts in our data. Our simulations indicate that their choices of which contracts to offer are profit-maximizing. However, many retailers prefer to utilize linear pricing contracts even when our model indicates that this may not be profit-maximizing.
Suggested Citation: Suggested Citation