Vertical Pressure as a Mechanism to Combat Monopolistic Bargaining Power: The Case of Pearl Jam Versus Ticketmaster

The theory of relative bargaining power (RBP) predicts that, in a dyadical transaction, value will be captured by the actor with more or better marginal outside options. As such, Industrial Organization (IO) Theory posits... [ view full abstract ]

The theory of relative bargaining power (RBP) predicts that, in a dyadical transaction, value will be captured by the actor with more or better marginal outside options. As such, Industrial Organization (IO) Theory posits that monopolists should prevail against bargaining partners since these bargaining partners have no outside options. While this may be generally true, specific vertical bargaining partners may have unique abilities to diminish monopoly rents if they can establish a countervailing power that is equal to, yet different from, the monopolist. These abilities can range from the partners own status as a dominant player in its industry to the ability to apply social pressures onto the bargaining partner in an attempt to diminish value extraction. While there is literature in the IO field that addresses both horizontal power and vertical power, there is a dearth of theory and empirics about such countervailing measures.
This paper addresses the lack of industrial organization-based research in the management field by theoretically modeling, and then qualitatively studying, the ways whereby vertical bargaining partners may be effective in combating monopoly power. I do this through a case study method since these relationships are difficult to study quantitatively. The case study revolves around the business, legal and public relations battle between Pearl Jam, a rock band who was one of the biggest forces in media in 1994, and Ticketmaster, a powerful broker/distributor of tickets and venues in the entertainment industry. While Ticketmaster had monopoly power and, therefore, vertical bargaining power over their supply chain (i.e. entertainment acts), Pearl Jam had “celebrity power,” a burgeoning field of study in management, marketing and sociology.
Using archival sources such as lawsuits, Congressional hearings, media interviews and business press, this case study studies how these two parties used their specific power capabilities during the time period of 1992 through 1997.