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Vertical Restraints with Incomplete Information

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  • Gal-Or, Esther

Abstract

When a firm contracts with a privately informed retailer, vertical restraints may be insufficient to eliminate distortions arising from having to induce truthful reporting. With franchise fee contracts (which are equivalent to any other "quantity forcing" contract), two distortions arise. The first is the need to transfer surplus to the retailer and the second is a reduction in the marginal return to production. With retail price maintenance contracts, the "first best" outcome of vertical integration is obtainable if the retailer observes private information only about the state of demand. If the retailer observes also private information about retailing costs, both distortions persist. Copyright 1991 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 39 (1991)
Issue (Month): 5 (September)
Pages: 503-16

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Handle: RePEc:bla:jindec:v:39:y:1991:i:5:p:503-16

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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Citations

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Cited by:
  1. Salvatore Piccolo & David Martimort, 2006. "The Strategic Value of Incomplete Contracting in a Competing Hierarchies Environment," CSEF Working Papers 160, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 08 Dec 2006.
  2. Jakub Kastl & David Martimort & Salvatore Piccolo, 2008. "Delegation and R&D Spending: Evidence from Italy," CSEF Working Papers 192, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 17 Oct 2009.
  3. Salvatore Piccolo & David Martimort, 2003. "Resale Price Maintenance under Asymmetric Information," CSEF Working Papers 107, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Apr 2007.
  4. Gianni De Fraja & Claudio A. G. Piga, . "Strategic Debt in Vertical Relationships," Discussion Papers 98/16, Department of Economics, University of York.
  5. Antonio Acconcia & Riccardo Martina & Salvatore Piccolo, 2005. "Vertical Restraints under Asymmetric Information: On the Role of Participation Constraints," CSEF Working Papers 141, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Jan 2007.
  6. David Martimort & Salvatore Piccolo, 2010. "The Strategic Value of Quantity Forcing Contracts," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 204-29, February.
  7. Chidmi, Benaissa & Lopez, Rigoberto A. & Cotterill, Ronald W., 2004. "Vertical Relationships In The Ready-To-Eat Breakfast Cereal Market: A Brand-Supermarket Level Analysis," 2004 Annual meeting, August 1-4, Denver, CO 19916, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  8. Yaron Yehezkel, 2008. "Retailers' choice of product variety and exclusive dealing under asymmetric information," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 115-143.
  9. Gal-Or, Esther, 1999. "Vertical integration or separation of the sales function as implied by competitive forces," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 641-662, July.
  10. Jakub Kastl & Salvatore Piccolo, 2004. "Collusive Effects of Vertical Restraints under Asymmetric Information," CSEF Working Papers 113, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Jun 2004.
  11. Pfeiffer, Thomas & Schneider, Georg, 2010. "How to elicit sequential retailer information optimally," Journal of Economics and Business, Elsevier, vol. 62(2), pages 147-159, March.
  12. Fraja, Gianni De & Piga, Claudio A. G., 2004. "Strategic debt in vertical relationships: theory and evidence," Research in Economics, Elsevier, vol. 58(2), pages 103-123, June.
  13. Jakub Kastl & David Martimort & Salvatore Piccolo, 2009. ""When Should Manufacturers Want Fair Trade?": New Insights from Asymmetric Information," CSEF Working Papers 218, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 08 Apr 2010.
  14. Jung Choong-Young & Kim Jae-Cheol & Lee Sang-Ho, 2000. "An Incentive Contract With Asymmetric Information," International Economic Journal, Korean International Economic Association, vol. 14(1), pages 99-110.
  15. Hempelmann, Bernd, 2006. "Optimal franchise contracts with private cost information," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 449-465, March.

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