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Vertical Restraints with Incomplete Information

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Author Info
Gal-Or, Esther

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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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Publisher Info
Article provided by Blackwell Publishing 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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  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 Salerno, Italy. [Downloadable!]
  2. 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 Salerno, Italy, revised 01 Jun 2006. [Downloadable!]
  3. Gianni deFraja & Claudio Piga, 2000. "Strategic Debt in Vertical Relationships," Econometric Society World Congress 2000 Contributed Papers 0059, Econometric Society. [Downloadable!]
    Other versions:
  4. Jakub Kastl & David Martimort & Salvatore Piccolo, 2008. "Delegation and R&D Incentives: Theory and Evidence from Italy," CSEF Working Papers 192, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
  5. 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 Salerno, Italy, revised 01 Jun 2005. [Downloadable!]
    Other versions:
  6. Choong-Young Jung & Jae-Cheol Kim & Sang-Ho Lee, 2000. "An Incentive Contract With Asymmetric Information," International Economic Journal, Korean International Economic Association, vol. 14(1), pages 99-110, April. [Downloadable!] (restricted)
  7. 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 Salerno, Italy. [Downloadable!]
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