Product Market Competition and the Boundaries of the firm
This paper studies the effects of product market competition on vertical integration. In a duopoly setting, each retailer is associated with a manufacturer who must decide how to allocate property rights over the retail asset. Choosing delegation of property rights over vertical integration transfers incentives from the manufacturer to the retailer, and has the benefit of facilitating the creation of value, due to the retailer's superior efficiency. On the other hand it forces the manufacturer to forfeit part of the profits. We show how competition affects the equilibrium allocation of property rights in the industry, and discuss model applications
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|Date of creation:||11 Aug 2004|
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