The Use of Full-line Forcing Contracts in the Video Rental Industry
NBER Working Paper No. 14588
We provide an empirical study of bundling in a supply chain, referred to as fullline forcing. We use an extensive dataset on contracts between video retailers and movie distributors to analyze the choices made on both sides of the market: which distributors offer full-line forcing contracts, which retailers take them up, and whether their decisions are profitable. Most large distributors offer full-line forcing contracts in our data. Our simulations indicate that their choices of which contracts to offer are profit-maximizing. However, many retailers prefer to utilize linear pricing contracts even when our model indicates that this may not be profit-maximizing.
Published: Katherine Ho & Justin Ho & Julie Holland Mortimer, 2012. "The Use of Full-Line Forcing Contracts in the Video Rental Industry," American Economic Review, American Economic Association, vol. 102(2), pages 686-719, April.
This paper was revised on December 5, 2011