Cost reducing strategies
We consider an industry where one of the manufacturers and its supplier (S) have engaged in some specific investment in the past. We assume that this has three consequences: S has lower expected production costs than other suppliers, supplier-switching costs exist, and the manufacturer may limit its rivals’ access to S. In the case when only S knows its true production costs, we compare alternative mechanisms to induce S to reveal its private information, namely, paying informational rents, using threats of switching suppliers, and most importantly, permitting S to serve other firms. We prove that the presence of asymmetric information mitigates the manufacturer’s incentives to engage in vertical restraints. We derive several policy implications from this result.
Volume (Year): 27 (2003)
Issue (Month): 1 (January)
|Contact details of provider:|| Postal: Investigaciones Economicas Fundación SEPI Quintana, 2 (planta 3) 28008 Madrid Spain|
Web page: http://www.fundacionsepi.es/
|Order Information:|| Web: http://www.fundacionsepi.es/revistas/presentacion.asp Email: |
When requesting a correction, please mention this item's handle: RePEc:iec:inveco:v:27:y:2003:i:1:p:5-37. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Isabel Sánchez-Seco)
If references are entirely missing, you can add them using this form.