NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Welfare Effects of Full-line Forcing Contracts in the Video Rental Industry

Justin Ho , Katherine Ho, Julie Holland Mortimer

NBER Working Paper No. 14588*
Issued in December 2008
NBER Program(s):   IO

An extensive theoretical literature on bundling examines its potential efficiency and anti-competitive effects. In this paper, we provide an empirical study of bundling in a supply chain, referred to as full-line forcing. Using an extensive dataset on contracts between video retailers and movie distributors, we identify and measure three effects of full-line forcing: market coverage, leverage, and efficiency. We estimate a structural model of demand and the cost of holding inventory. Using the estimated parameters, we examine the effects of delaying the introduction of full-line forcing contracts. We find that delay results in a welfare loss for firms and consumers.

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