Analyzing the Welfare Impacts of Full-Line Forcing Contracts
31 Pages Posted: 6 Nov 2010
Date Written: August 23, 2010
Theoretical investigations have examined both anti-competitive and efficiency-inducing rationales for vertical bundling, making empirical evidence important to understanding its welfare implications. We use an extensive dataset on full-line forcing contracts between movie distributors and video retailers to empirically measure the impact of vertical bundling on welfare. We identify and measure three primary effects of full-line forcing contracts: market coverage, leverage, and efficiency. We find that bundling increases market coverage and efficiency, but has little impact on one distributor gaining leverage over another. As a result, we estimate that full-line forcing contracts increased consumer and producer surplus in this application.
Keywords: empirical, measurement, vertical, bundling, leverage, efficiency, anti-competitive
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