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Monitoring decisions in vertical integration

Author

Listed:
  • Sonia Di Giannatale

    (Centro de Investigación y Docencia Económicas (CIDE), División de Economía)

  • Itza T. Q. Curiel-Cabral

    (CIDE)

  • Jacqueline Chacón

    (Global Econ.)

Abstract

We propose a model where the manufacturer makes two main decisions: whether or not to monitor the retailer, and whether or not to vertically integrate with the retailer in a context in which the retailer has private information about the project’s outcomes, and both the manufacturer and the retailer have private information about their respective actions. From a theoretical perspective, this model contributes to the design of proper incentives for truthful revelation of private information and implementation of optimal effort levels. As a result, we obtain some predictions which are potentially relevant to the empirical literature of vertical integration that revolve around a novel theoretical result in which we find conditions under which vertically integrated firms might undertake monitoring activities.

Suggested Citation

  • Sonia Di Giannatale & Itza T. Q. Curiel-Cabral & Jacqueline Chacón, 2021. "Monitoring decisions in vertical integration," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(3), pages 441-462, September.
    • Handle: RePEc:spr:epolin:v:48:y:2021:i:3:d:10.1007_s40812-021-00189-8
    DOI: 10.1007/s40812-021-00189-8
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    More about this item

    Keywords

    Vertical integration; Hidden information; Hidden action;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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