Data and Code for: Agency Pricing and Bargaining: Evidence from the E-Book Market

This study examines the pricing implications of two types of vertical contracts under bargaining: wholesale contracts, where downstream firms set retail prices after negotiating wholesale prices, and agency contracts, where upstream firms set retail prices after negotiating sales royalties. We show that agency contracts can lead to higher or lower retail prices than wholesale contracts, depending on the distribution of bargaining power. We propose a methodology to structurally estimate a model with either contract form under Nash-in-Nash bargaining. We apply our model to the e-book industry, which transitioned from wholesale to agency contracts after the expiration of a ban on agency contracting imposed in the antitrust settlement between the U.S. Department of Justice and the major publishers. Using a unique dataset of e-book prices, we show that the transition to agency contracting increased Amazon prices substantially but had little effect on Barnes & Noble prices. We find that the assumption of Nash-in-Nash bargaining explains the data better than an assumption of take-it-or-leave-it input contracts. Counterfactual simulations indicate that the reinstitution of most-favored-nation clauses, which were banned for five years in the 2012 settlement, would raise the prices of e-books by 8 percent but would lower the profits of the publishers and Amazon.