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Vertical Boundaries and Endogenous Intensity of Social Comparison

Author

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  • Michael Kopel
  • Anna Ressi

Abstract

We study how interfirm social comparison can alter the choice of two competing manufacturers between vertical integration and vertical separation if retailers are status-concerned. Status is determined by the difference in retailers' market shares. The novelty of our approach is that in line with empirical evidence, the intensity of social comparison (i) depends on the distance between retail outlets, and (ii) can be influenced by the manufacturers by adjusting their outlets' locations. In contrast to the commonly studied case of a distance-independent intensity of status concern, social comparison with a distance-dependent intensityof status concern might predict different vertical boundaries.

Suggested Citation

  • Michael Kopel & Anna Ressi, 2019. "Vertical Boundaries and Endogenous Intensity of Social Comparison," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 175(2), pages 207-227.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2018-0018
    DOI: 10.1628/jite-2018-0018
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    More about this item

    Keywords

    social comparison; status concerns; vertical separation; vertical integration; price competition;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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