The Agency Model and MFN Clauses

• Autores: Justin P. Johnson
• Localización: Review of economic studies, ISSN 0034-6527, Vol. 84, Nº 3, 2017, págs. 1151-1185
• Idioma: inglés
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• Resumen

  • I provide an analysis of vertical relations in markets with imperfect competition at both layers of the supply chain and where exchange is intermediated either with wholesale prices or revenue-sharing contracts. Revenue-sharing is extremely attractive to firms that are able to set the revenue shares but often makes the firms that set retail prices worse off. This is so whether revenue-sharing lowers or raises industry profits. These results are strengthened when a market moves from “the wholesale model” of sales to “the agency model” of sales, which results in retailers setting revenue shares and suppliers setting retail prices. I also show that retail price-parity restrictions raise industry prices. These results provide a potential explanation for why many online retailers have adopted the agency model and retail price-parity clauses.