We consider an industry where one of the manufacturers and its supplier (S) have engaged in some specific investment in the past. We assume that this has three consequences: S has lower expected production costs than other suppliers, supplier-switching costs exist, and the manufacturer may limit its rivals’ access to S. In the case when only S knows its true production costs, we compare alternative mechanisms to induce S to reveal its private information, namely, paying informational rents, using threats of switching suppliers, and most importantly, permitting S to serve other firms. We prove that the presence of asymmetric information mitigates the manufacturer’s incentives to engage in vertical restraints. We derive several policy implications from this result.
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Volume (Year): 27 (2003) Issue (Month): 1 (January) Pages: 5-37 Download reference. The following formats are available: HTML
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Handle: RePEc:iec:inveco:v:27:y:2003:i:1:p:5-37
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