"When Should Manufacturers Want Fair Trade?": New Insights from Asymmetric Information
We study a specific model of competing manufacturer-retailer pairs where adverse selection and moral hazard are coupled with non-market externalities at the downstream level. In this simple framework we show that a “laissez- faire" approach towards vertical price control might harm consumers as long as privately informed retailers impose non-market externalities on each other. Giving manufacturers freedom to control retail prices harms consumers when retailers impose positive non-market externalities on each other, and the converse is true otherwise. Moreover, in contrast to previous work, we show that, in these instances, consumers' and suppliers' preferences over contractual choices are not necessarily aligned.
|Date of creation:||12 Mar 2009|
|Date of revision:||08 Apr 2010|
|Publication status:||Published in Journal of Economics & Management Strategy, 2011, Vol. 20, 649-677.|
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