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Analyzing the Welfare Impacts of Full‐line Forcing Contracts
Author(s) -
Ho Justin,
Ho Katherine,
Holland Mortimer Julie
Publication year - 2012
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2012.00489.x
Subject(s) - forcing (mathematics) , leverage (statistics) , welfare , economic surplus , microeconomics , economics , consumer welfare , industrial organization , business , computer science , mathematics , mathematical analysis , machine learning , market economy
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's gaining leverage over another. As a result, we estimate that full‐line forcing contracts increased consumer and producer surplus in this application.