Agency model versus wholesale model

Agency and wholesale models are widely adopted vertical contractual agreements. This paper compares the private incentives and social welfare of these two business models by highlighting the differences in move order and price structure. With a monopoly platform, the agency model dominates the whole...

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Bibliographic Details
Published in:Information economics and policy 2024-09, Vol.68, p.101093, Article 101093
Main Authors: Gu, Dingwei, Huang, Yangguang
Format: Article
Language:English
Subjects:
Agency model
Antitrust
Online platform
Vertical relationship
Wholesale model
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Summary:Agency and wholesale models are widely adopted vertical contractual agreements. This paper compares the private incentives and social welfare of these two business models by highlighting the differences in move order and price structure. With a monopoly platform, the agency model dominates the wholesale model with respect to social welfare and the platform's profit if and only if demand is subconvex. With duopoly platforms, having both platforms adopt the agency model is socially desirable, and it is a dominant-strategy Nash equilibrium if demand is weakly convex. Our findings have novel theoretical contributions and offer insights into some influential antitrust cases. •Comparison of private incentives and social welfare in vertically related markets under two business models.•With a monopoly platform, the agency model dominates the wholesale model if demand is subconvex.•With duopoly platforms, having both platforms adopt the agency model is socially desirable.•It is a dominant-strategy Nash equilibrium if demand is weakly convex.
ISSN:0167-6245
DOI:10.1016/j.infoecopol.2024.101093