Optimal Vertical Arrangements When Resale Is Possible
AbstractThis paper pinpoints optimal vertical arrangements in settings characterized by incomplete contracting and resale of an intermediate input (a "widget"). In the Grossman-Hart-Moore property rights theory, we conclude that sometimes strictly complementary assets should be owned separately to permit the emergence of a secondary market. In a richer model where the parties choose specific and nonspecific investments, vertical separation may also dominate joint ownership. The article then examines the profitability of three integration forms when the proposed bargaining model substitutes random-order values (e.g., the Shapley value). The conclusions differ markedly from existing claims. (JEL C70, C78, D23, L42) The Author 2008. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: firstname.lastname@example.org, Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal The Journal of Law, Economics, & Organization.
Volume (Year): 25 (2009)
Issue (Month): 1 (May)
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Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
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