CCP Annual Conference 2015 Live Blogging Session 3: Platforms and Price Relationship Agreements

Kai-Uwe Kuhn (University of Michigan, USA @umichECON) shed light on recent cases involving platform intermediaries, e.g., hotel booking and price comparison websites, by disentangling the effects of best price clauses offered by those platforms. By exploring the demand elasticity effect, substitution effect and entry-deterrence effect of best price clauses, Kai-Uwe commented on the anticompetitive impact that best price clauses bring about. Best price clauses could lead to higher prices since they tend to lower the levels of competition between service providers such as hotels. But since the best price clauses only affect end consumer substitution rather than seller substitution, the investment incentives are not necessarily undermined. We are in a dynamic environment in which there is an increasing trend of integration between booking and price comparison websites. Whilst issues in these two-sided markets remain complex, Kai-Uwe suggested that one could approach the problem by examining incentives under each separated vertical relations.

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Matthijs R Wildenbeest (Indiana University, USA @KelleyIndy) presented work co-authored with Babur De los Santos (Indiana University), regarding the impact of vertical price restraints in the market for e-books. Their analysis is based on a suit filed by the Department of Justice in 2012 against five e-book publishers and Apple. In 2010, these publishers simultaneously adopted the agency model, which allowed them to directly set e-book prices. Amazon, who at the time followed an aggressive pricing strategy, was forced to adopt the agency model as well, along with other retailers.The suit resulted in a settlement that prevents the publishers from interfering with retailers’ ability to set e-book prices.

Using a unique dataset of daily e-book prices for a large sample of books across major online retailers, Matthijs and Babur estimate the effect of the return to wholesale model on retail prices. Their analysis reveals that e-book prices for titles that were previously sold using the agency model decreased by 18% at Amazon and 8% at Barnes & Noble. They found a stronger effect on the fiction genre, which is a more competitive book market. Their results illustrate a market where upstream firms prefer higher retail prices than downstream retailers. These findings help shed some light on the effects of the agency model on pricing. Matthijs suggests that they could be applied to other markets using agency models.

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