Turning the Page on Business Formats for Digital Platforms: Does Apple's Agency Model Soften Competition?
35 Pages Posted: 29 Aug 2013
Date Written: August 29, 2013
The agency model used by Apple and other platform providers such as Google allows upstream firms (content providers like book publishers and developers of apps) to choose the retail prices of their products (RPM) subject to a fixed revenue-sharing rule. We show that (i) this leads to higher prices if the competitive pressure is higher downstream than upstream; (ii) upstream firms earn positive surplus even when platform providers have all the bargaining power; and (iii) with asymmetric business formats (where only some platform providers use the agency model), a retail most-favored-nation clause leads to retail prices that resemble the outcome under industry-wide RPM.
Keywords: the agency model, resale price maintenance, most-favored nation clauses, revenue sharing
JEL Classification: L130, L410, L420
Suggested Citation: Suggested Citation