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Vertical Integration and the Strategic use of Private Information

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  • Keith J. Crocker
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    Abstract

    This article presents a model of bilaterial monopoly in which one of the agents possesses private information about actual production costs. The strategic disclosure of this information is used as a bargaining tactic in an attempt to appropriate the quasi rents resulting from production. We examine the market transactions costs associated with the strategic use of private information. Vertical integration restructures private incentives so that the strategic use of information is minimized, thereby resulting in increased efficiency of production.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal Bell Journal of Economics.

    Volume (Year): 14 (1983)
    Issue (Month): 1 (Spring)
    Pages: 236-250

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    Handle: RePEc:rje:bellje:v:14:y:1983:i:spring:p:236-250

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    Cited by:
    1. Khalid Sekkat, 1987. "Filières de production: revue de la littérature et comparaison avec la théorie néo-classique," ULB Institutional Repository 2013/7302, ULB -- Universite Libre de Bruxelles.
    2. Choi, Jay Pil, 1998. "Information concealment in the theory of vertical integration," Journal of Economic Behavior & Organization, Elsevier, vol. 35(1), pages 117-131, March.
    3. Graziano, Clara, 1995. "Cost observability and renegotiation," Journal of Economic Behavior & Organization, Elsevier, vol. 28(3), pages 359-372, December.
    4. Fiocco, Raffaele, 2014. "The strategic value of partial vertical integration," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 455, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    5. Lehmann, Paul, 2008. "Using a policy mix for pollution control: A review of economic literature," UFZ Discussion Papers 4/2008, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    6. Allain, Marie-Laure & Chambolle, Claire & Rey, Patrick, 2011. "Vertical Integration, Information and Foreclosure," TSE Working Papers 11-237, Toulouse School of Economics (TSE), revised Nov 2011.
    7. Gal-Or, Esther, 1999. "Vertical integration or separation of the sales function as implied by competitive forces," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 641-662, July.
    8. Mason, Charles F. & Phillips, Owen R., 2000. "Vertical integration and collusive incentives: an experimental analysis," International Journal of Industrial Organization, Elsevier, vol. 18(3), pages 471-496, April.
    9. Evans, Shane, 2010. "Franchise Contracts with Ex Post Limited Liability," Working Papers 10281, University of Tasmania, School of Economics and Finance, revised 05 Oct 2010.
    10. Fronmueller, M. P. & Reed, R., 1996. "The competitive advantage potential of vertical integration," Omega, Elsevier, vol. 24(6), pages 715-726, December.

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