Vertical Restraints under Asymmetric Information: On the Role of Participation Constraints
AbstractWe 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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Bibliographic InfoPaper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 141.
Date of creation: 01 Jul 2005
Date of revision: 01 Jan 2007
Publication status: Published in Journal of Industrial Economics, 2008, Volume LVI, June, No. 2, pages 379-401
asymmetric information; countervailing incentive; double marginalization; resale price maintenance; vertical restraint; welfare;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L4 - Industrial Organization - - Antitrust Issues and Policies
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
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