Welfare Effects Of Full-line Forcing Contracts In The Video Rental Industry
The authors provide an empirical study of bundling in a supply chain, referred to as full line forcing. The authors 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 the data. The simulations indicate that their choices of which contracts to offer are profit maximizing. However, the reasons why firms choose to adopt bundling contracts in vertically-separated markets are often not completely understood, especially from an empirical perspective.