Working Paper: NBER ID: w16318
Authors: Justin Ho; Katherine Ho; Julie Holland Mortimer
Abstract: 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 fullline 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: Vertical Bundling; Welfare Impacts; Full-Line Forcing Contracts
JEL Codes: L0; L1; L4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| FLF contracts (J41) | increase in the number of titles available to consumers (F61) |
| FLF contracts (J41) | increased inventory levels for titles (Y70) |
| FLF contracts (J41) | minimal leverage effect (G40) |
| FLF contracts (J41) | enhanced market coverage (G14) |
| FLF contracts (J41) | better inventory choices by retailers (L81) |