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Solving the « selective intervention » puzzle

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  • Jacques Crémer

Abstract

This paper discusses the way in which the economic literature has solved Williamson?s selective intervention puzzle: why is that vertical integration, which gives the purchasing firm more control over its trading partner, not always more profitable than vertical separation? I argue that all the models which tackle this problem share a common feature: in the contracts which describe the relations between agents, the principal still makes decisions and acts after the contract is signed. As a consequence, the greater control provided by vertical integration can affect the principal?s ex-post behavior in ways which are ex-ante point of view detrimental to its profits.

Suggested Citation

  • Jacques Crémer, 2010. "Solving the « selective intervention » puzzle," Revue d'économie industrielle, De Boeck Université, vol. 0(1), pages 43-56.
    • Handle: RePEc:cai:reidbu:rei_129_0043
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