IDEAS home Printed from https://ideas.repec.org/p/sef/csefwp/218.html
   My bibliography  Save this paper

"When Should Manufacturers Want Fair Trade?": New Insights from Asymmetric Information

Author

Listed:
  • Jakub Kastl

    (Stanford University)

  • David Martimort

    (Toulouse School of Economics)

  • Salvatore Piccolo

    (University of Naples "Federico II", CSEF and Toulouse School of Economics,)

Abstract

We study a specific model of competing manufacturer-retailer pairs where adverse selection and moral hazard are coupled with non-market externalities at the downstream level. In this simple framework we show that a “laissez- faire" approach towards vertical price control might harm consumers as long as privately informed retailers impose non-market externalities on each other. Giving manufacturers freedom to control retail prices harms consumers when retailers impose positive non-market externalities on each other, and the converse is true otherwise. Moreover, in contrast to previous work, we show that, in these instances, consumers' and suppliers' preferences over contractual choices are not necessarily aligned.

Suggested Citation

  • Jakub Kastl & David Martimort & Salvatore Piccolo, 2009. ""When Should Manufacturers Want Fair Trade?": New Insights from Asymmetric Information," CSEF Working Papers 218, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 08 Apr 2010.
    • Handle: RePEc:sef:csefwp:218
    as

    Download full text from publisher

    File URL: http://www.csef.it/WP/wp218.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. Gal-Or, Esther, 1991. "Vertical Restraints with Incomplete Information," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 503-516, September.
    3. David Martimort, 1996. "Exclusive Dealing, Common Agency, and Multiprincipals Incentive Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 1-19, Spring.
    4. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
    5. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919.
    6. Antonio Acconcia & Riccardo Martina & Salvatore Piccolo, 2008. "Vertical Restraints Under Asymmetric Information: On The Role Of Participation Constraints," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 379-401, June.
    7. David Martimort & Salvatore Piccolo, 2010. "The Strategic Value of Quantity Forcing Contracts," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 204-229, February.
    8. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347-347.
    9. G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
    10. Martimort, David & Piccolo, Salvatore, 2007. "Resale price maintenance under asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 315-339, April.
    11. 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.
    12. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
    13. Kai-Uwe Kuhn, 1997. "Nonlinear Pricing in Vertically Related Duopolies," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 37-62, Spring.
    14. Benjamin F. Blair & Tracy R. Lewis, 1994. "Optimal Retail Contracts with Asymmetric Information and Moral Hazard," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 284-296, Summer.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. David Martimort & Salvatore Piccolo, 2010. "The Strategic Value of Quantity Forcing Contracts," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 204-229, February.
    2. Matteo Bassi & Marco Pagnozzi & Salvatore Piccolo, 2015. "Product Differentiation by Competing Vertical Hierarchies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(4), pages 904-933, October.
    3. Marco Pagnozzi & Salvatore Piccolo & Matteo Bassi, 2016. "Entry and Product Variety with Competing Supply Chains," Journal of Industrial Economics, Wiley Blackwell, vol. 64(3), pages 520-556, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jakub Kastl & David Martimort & Salvatore Piccolo, 2011. "“When Should Manufacturers Want Fair Trade?”: New Insights from Asymmetric Information when Supply Chains Compete," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(3), pages 649-677, September.
    2. Leda Maria Bonazzi & Raffaele Fiocco & Salvatore Piccolo, 2021. "Vertical Price Restraints and Free Entry Under Asymmetric Information," Journal of Industrial Economics, Wiley Blackwell, vol. 69(4), pages 854-899, December.
    3. Antonio Acconcia & Riccardo Martina & Salvatore Piccolo, 2008. "Vertical Restraints Under Asymmetric Information: On The Role Of Participation Constraints," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 379-401, June.
    4. David Martimort & Salvatore Piccolo, 2010. "The Strategic Value of Quantity Forcing Contracts," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 204-229, February.
    5. Fiocco, Raffaele, 2016. "The strategic value of partial vertical integration," European Economic Review, Elsevier, vol. 89(C), pages 284-302.
    6. Marco Pagnozzi & Salvatore Piccolo & Matteo Bassi, 2016. "Entry and Product Variety with Competing Supply Chains," Journal of Industrial Economics, Wiley Blackwell, vol. 64(3), pages 520-556, September.
    7. Salvatore Piccolo & David Martimort, 2006. "The Strategic Value of Incomplete Contracting in a Competing Hierarchies Environment," CSEF Working Papers 160, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 08 Dec 2006.
    8. Matteo Bassi & Marco Pagnozzi & Salvatore Piccolo, 2015. "Product Differentiation by Competing Vertical Hierarchies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(4), pages 904-933, October.
    9. Martimort, David & Piccolo, Salvatore, 2007. "Resale price maintenance under asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 315-339, April.
    10. Piccolo, Salvatore & D'Amato, Marcello & Martina, Riccardo, 2008. "Product market competition and organizational slack under profit-target contracts," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1389-1406, November.
    11. Jakub Kastl & Salvatore Piccolo, 2004. "Collusive Effects of Vertical Restraints under Asymmetric Information," CSEF Working Papers 113, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Jun 2004.
    12. Kai-Uwe Kuhn, 1997. "Nonlinear Pricing in Vertically Related Duopolies," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 37-62, Spring.
    13. Stefan Buehler & Dennis L. Gärtner, 2013. "Making Sense of Nonbinding Retail-Price Recommendations," American Economic Review, American Economic Association, vol. 103(1), pages 335-359, February.
    14. Sreya Kolay & Greg Shaffer, 2022. "Slotting Fees and Price Discrimination in Retail Channels," Marketing Science, INFORMS, vol. 41(6), pages 1145-1162, November.
    15. Vettas, Nikolaos & Petrakis, Emmanuel & Milliou, Chrysovalantou, 2003. "Endogenous Contracts Under Bargaining in Competing Vertical Chains," CEPR Discussion Papers 3976, C.E.P.R. Discussion Papers.
    16. Salvatore Piccolo & Jeanine Miklós-Thal, 2012. "Colluding through suppliers," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 492-513, September.
    17. Neven, Damien & Piccolo, Salvatore & Andreu, Enrique, 2021. "Price Authority and Information Sharing with Competing Principals," CEPR Discussion Papers 16753, C.E.P.R. Discussion Papers.
    18. Chidmi, Benaissa & Lopez, Rigoberto A. & Cotterill, Ronald W., 2004. "Vertical Relationships In The Ready-To-Eat Breakfast Cereal Market: A Brand-Supermarket Level Analysis," 2004 Annual meeting, August 1-4, Denver, CO 19916, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    19. Oana Secrieru, 2006. "The Economic Theory Of Vertical Restraints," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 797-822, December.
    20. Jakub Kastl & David Martimort & Salvatore Piccolo, 2008. "Delegation and R&D Spending: Evidence from Italy," CSEF Working Papers 192, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 17 Oct 2009.

    More about this item

    Keywords

    Competing hierarchies; resale price maintenance; retail externalities;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sef:csefwp:218. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Maria Carannante (email available below). General contact details of provider: https://edirc.repec.org/data/cssalit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.