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Vertical Integration and the Strategic use of Private Information

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  • Keith J. Crocker

Abstract

This article presents a model of bilaterial monopoly in which one of the agents possesses private information about actual production costs. The strategic disclosure of this information is used as a bargaining tactic in an attempt to appropriate the quasi rents resulting from production. We examine the market transactions costs associated with the strategic use of private information. Vertical integration restructures private incentives so that the strategic use of information is minimized, thereby resulting in increased efficiency of production.

Suggested Citation

  • Keith J. Crocker, 1983. "Vertical Integration and the Strategic use of Private Information," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 236-250, Spring.
  • Handle: RePEc:rje:bellje:v:14:y:1983:i:spring:p:236-250
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    Cited by:

    1. Fiocco, Raffaele, 2016. "The strategic value of partial vertical integration," European Economic Review, Elsevier, vol. 89(C), pages 284-302.
    2. Allain, Marie-Laure & Chambolle, Claire & Rey, Patrick, 2011. "Vertical Integration, Information and Foreclosure," IDEI Working Papers 673, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 2011.
    3. Evans, Shane, 2010. "Franchise Contracts with Ex Post Limited Liability," Working Papers 10281, University of Tasmania, Tasmanian School of Business and Economics, revised 05 Oct 2010.
    4. Graziano, Clara, 1995. "Cost observability and renegotiation," Journal of Economic Behavior & Organization, Elsevier, vol. 28(3), pages 359-372, December.
    5. Mason, Charles F. & Phillips, Owen R., 2000. "Vertical integration and collusive incentives: an experimental analysis," International Journal of Industrial Organization, Elsevier, vol. 18(3), pages 471-496, April.
    6. Lehmann, Paul, 2008. "Using a Policy Mix for Pollution Control – A Review of Economic Literature," MPRA Paper 21354, University Library of Munich, Germany.
    7. Sekkat, Kh., 1987. "Filières de production : revue de la littérature et comparaison avec la théorie néo-classique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 63(1), pages 118-142, mars.
    8. Fronmueller, M. P. & Reed, R., 1996. "The competitive advantage potential of vertical integration," Omega, Elsevier, vol. 24(6), pages 715-726, December.
    9. Choi, Jay Pil, 1998. "Information concealment in the theory of vertical integration," Journal of Economic Behavior & Organization, Elsevier, vol. 35(1), pages 117-131, March.
    10. 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.

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