"We found that delegating prices upstream makes sense if competitive pressures are lower there than they are downstream," said Shaffer. "This was likely the case because publishers were worried that e-books would cannibalize their regular book sales, whereas Amazon wanted to create demand for their e-book reader." The co-authors found the agency model is not intrinsically anti-competitive. "It can lead to higher or lower prices depending on whether consumers are more willing to substitute between goods or between platforms," Shaffer explained. "In Apple's case, it wanted higher prices, and it got them."
Shaffer and his colleagues also analyzed why Amazon quickly followed Apple's lead by also moving to the agency model—so quickly that it raised red flags with competition authorities. "We found this may have been due to Apple's insistence on adopting MFN clauses, which mandated that publishers could not charge less at Amazon than at Apple," Shaffer said. In other words, Amazon may have had little choice.
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SOURCE Simon Business School