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Product market competition and boundaries of the firm

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  • Jean-Etienne de Bettignies

Abstract

This paper studies the effects of product market competition on firm boundaries. In a duopoly setting, each retailer is associated with a manufacturer who must decide how to allocate property rights over a retail asset. Delegating property rights over the retail asset to an indepedent retailer (`disintegration') transfers incentives from the manufacturer to the retailer and has the benefit of increasing product quality and profits, owing to the retailer's superior efficiency. However, it also forces the manufacturer to forfeit part of the profits. Competition increases the net benefit from delegation and leads to more efficient, vertically disintegrated structures.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 39 (2006)
Issue (Month): 3 (August)
Pages: 948-970

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Handle: RePEc:cje:issued:v:39:y:2006:i:3:p:948-970

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Cited by:
  1. Bayo-Moriones, Alberto & Galdon-Sanchez, Jose Enrique & Gil, Ricard, 2013. "'Make-or-Buy' of Peripheral Services in Manufacturing: Evidence from Spanish Plant-Level Data," IZA Discussion Papers 7138, Institute for the Study of Labor (IZA).
  2. Bayo, Alberto & Galdon-Sanchez, Jose E. & Gil, Ricard, 2009. "The determinants of changes in the organization of production: Evidence from Spanish plant-level data," IESE Research Papers D/783, IESE Business School.

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