Vertical Restraints under Asymmetric Information: On the Role of Participation Constraints

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Vertical Restraints under Asymmetric Information: On the Role of Participation Constraints

Author Info

Antonio Acconcia () (Università di Napoli Federico II and CSEF)
Riccardo Martina () (Università di Napoli Federico II and CSEF, Università di Salerno)
Salvatore Piccolo () (Northwestern University, Università di Salerno and CSEF)

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Abstract

We study a manufacturer-retailer relationship where, besides the adverse selection and moral hazard components, it is explicitly considered a type-dependent participation constraint capturing the shadow cost of exclusive dealings. The welfare effects of contracts based on both retail price and sales are compared to those of contracts contingent solely upon sales. When the type-dependent outside option severely aspects the agency problem and contracts are set non-cooperatively, retail price restrictions may be detrimental to consumers. At the same time, if contracts are set cooperatively, we show that whenever sales-based contracts are observed they are detrimental to consumers.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy in its series CSEF Working Papers with number 141.

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Date of creation: 01 Jul 2005
Date of revision: 01 Jun 2006
Handle: RePEc:sef:csefwp:141

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
L4 - Industrial Organization - - Antitrust Issues and Policies
L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-08-13 (All new papers)
NEP-COM-2005-08-13 (Industrial Competition)

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Other versions:
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