Do Agency Contracts Facilitate Upstream Collusion?

Abstract

We examine whether agency contracts, more than traditional wholesale contracts, facilitate collusion among upstream manufacturers. We develop an infinitely repeated game with a monopoly platform and multiple manufacturers, and show that the agency contract does not facilitate upstream collusion. By contrast, in an extended model with competing platforms, we obtain the opposite result that agency contracts facilitate upstream collusion. It is particularly interesting that competing platforms might have an incentive to foster the formation of upstream collusion under agency contracts because accepting the collusion can act as a coordination device for them to maintain their commission rate at a high level. These results hold numerous implications for several recent antitrust cases related to collusion and coordination in online platforms.