Collusive Effects of Vertical Restraints under Asymmetric Information
This paper points out that vertical delegation, implemented through the design of quantity discount contracts, may allow upstream producers, as well as downstream retailers, to achieve profits higher than those obtained under vertical integration or contracts based on price restrictions. Our result shows that when downstream competition is sufficiently tough, the design of suitable vertical restraints implements a market outcome closer to the monopoly benchmark, which has a detrimental effect on consumer surplus. Moreover, we argue that legally banning price restricting contracts is suboptimal, the reason being that they remove a double-marginalization effect created by asymmetric information between upstream producers and downstream retailers.
|Date of creation:||01 Jan 2004|
|Date of revision:||01 Jun 2004|
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- Fershtman, Chaim & Judd, Kenneth L & Kalai, Ehud, 1991.
"Observable Contracts: Strategic Delegation and Cooperation,"
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- Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-122, February.
- Shepard, Andrea, 1990. "Pricing Behavior and Vertical Contracts in Retail Markets," American Economic Review, American Economic Association, vol. 80(2), pages 427-431, May.
- Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December. Full references (including those not matched with items on IDEAS)
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