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Incentives for the emergence of vertical restraints. Item Type text; Dissertation-Reproduction (electronic) Authors Durham, Yvonne. Publisher The University of Arizona. Rights Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author. Download date 05/10/2021 14:22:35 Link to Item http://hdl.handle.net/10150/186842 INFORMATION TO USERS This manuscript has been reproduced from the microfilm master. UMI films the text directly from the original or copy submitted. Thus, some thesis and dissertation copies are in typewriter face, while others may be from any type of computer printer. The quality of this reproduction is dependent upon the quality of the copy submitted. 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Contact UMI directly to order. U-M·I University Microfilms International A Bell & Howell Information Company 300 North Zeeb Road. Ann Arbor. M148106·1346 USA 313/761·4700 800/521·0600 Order Number 9506975 Incentives for the emergence of vertical restraints Durham, Yvonne, Ph.D. The University of Arizona, 1994 V·M·I 300 N. Zeeb Rd. Ann Arbor, MI 48106 INCENTIVES FOR THE EMERGENCE OF VERTICAL RESTRAINTS by Yvonne Durham A Dissertation Submitted to the Faculty of the DEPARTMENT OF ECONOMICS In Partial Fulfillment of the Requirements For the Degree of DOCTOR OF PHILOSOPHY In the Graduate College THE UNIVERSITY OF ARIZONA 1 994 2 THE UNIVERSITY OF ARIZONA GRADUATE COLLEGE As members of the Final Examination Committee, we certify that we have read the dissertation prepared by-------------------------------------- Yvonne Durham entitled Incentives for the Emergence of Vertical Restraints --------------------------~---------------------------------- and recommend that it be accepted as fulfilling the dissertation requirement for the Degree of __~J)~Q~C~,iv~_~~~~--~~~b~f~/~V~s~O~f~~,2F~------------ _j /L2 17V Date I ,; A .... _ 7~-= 7/""2--"Llqy V\../v~t·· ~ ! Date Date Date Date Final approval and acceptance of this dissertation is contingent upon the candidate's submission of the final copy of the dissertation to the Graduate College. I hereby certify that I have read this dissertation prepared under my direction and recommend that it be accepted as fulfilling the dissertation requirement. Dissertation Director Date 3 STATEMENT BY AUTHOR This dissertation has been submitted in partial fulfillment of requirements for an advanced degree at The University of Arizona and is deposited in the University Library to be made available to borrowers under rules ofthe Library. Brief quotations from this dissertation are allowable without special permission. provided that accurate acknowledgement of source is made. Requests for permission for extended quotation from or reproduction of this manuscript in whole or in part may be granted by the head of the major department of the Dean of the Graduate College when in his or her judgment the proposed use of the material is in the interests of scholarship. In all other instances. however. permission must be obtained from the author. SIGNED'¥~ ~ 4 ACKNOWLEDGEMENTS I would like to thank the members of my dissertation committee: Mark Isaac for his continued support as dissertation director. Stan Reynolds for his insightful comments and encouragement. and especially Vernon Smith. for providing me with emotional and financial support to continue my studies in the face of seemingly overwhelming obstacles. I am also very grateful for the financial and technical support provided by the Economic Science Laboratory. Shawn Lamaster and Zhu Li provided invaluable programming help; Pat Kiser always knew which forms needed to be turned in where and to whom; and Steve Rassenti always had an open door. For these things and for their constant friendship. I thank them. Finally. I would like to thank my family for their constant support and my friend Don Wells for teaching me that economics can be fun and rewarding. A special thanks goes to all the wonderful friends and educators who were patient with my questions and generous with their time. 5 TABLE OF CONTENTS LIST OF FIGURES .............................................................................................................7 LIST OF TABLES ...............................................................................................................8 ABSTRACT ........................................................................................................................9 1. AN EXPERIMENTAL EXAMINATION OF DOUBLE MARGINALIZATION AND VERTICAL RELA TIONSHIPS ............................................................................... 11 1.1 Introduction and Literature Review ................................................................. 11 1.2 Experimental Design .........................................................................................15 1.3 Experimental Procedures ................................................................................. 20 1.4 Experimental Results ........................................................................................ 22 1.5 Conclusions ...................................................................................................... 31 1.6 Endnotes .......................................................................................................... 33 2. A THEORETICAL MODEL OF SYSTEMS EXCLUSIVE DEALING ................................. 35 2.1 Introduction and Literature Review ................................................................. 35 2.2 Model Specification ......................................................................................... 39 2.3 Game Description .............................................................................................42 2.4 Equilbrium Without Exclusive Dealing .............................................................43 2.5 Equilbrium With Exclusiv~ Dealing .................................................................. 45 2.6 Results .............................................................................................................. 51 3. DID NINTENDO USE EXCLUSIVE DEALING CONTRACTS TO MAINTAIN ITS MONOPOLY POSITION IN THE U.S. HOME VIDEO GAME INDUSTRy? ................... 62 3.1 Introduction ......................................................................................................62 3.2 History of Nintendo ......................................................................................... 64 3.3 The U.S. Home Video Game Industry Before Nintendo .................................. 66 3.4 The Market Test ..............................................................................................68 3.5 The Security Chip ............................................................................................. 73 3.6 Licensing Restrictions .......................................................................................74 3.7 Marketing Practices .......................................................................................... 77 3.7.1 Nintendo Power ....................................................................................... 77 3.7.2 Nintendo Hotline ..................................................................................... 78 3.7.3 Keeping Parents Happy ............................................................................ 79 3.7.4 Game Management .................................................................................. 80 6 TABLE OF CONTENTS - Continued 3.8 Competitors and Advances in Technology ...................................................... 82 3.8.1 The Super Nintendo Entertainment System ............................................ 85 3.8.2 The Continuing Market for NES .............................................................. 86 3.8.3 Licensee Benefits ..................................................................................... 87 3.9 Lawsuits ........................................................................................................... 89 3.9.1 Atari Garnes Corporation ......................................................................... 89 3.9.2 Atari Corporation ..................................................................................... 91 3.9.4 Federal Trade Commission ...................................................................... 93 3.10 Legal Treatment of Exclusive Dealing ............................................................