Vertical Separation with Private Contracts
We consider a manufacturer's incentive to sell through an independent retailer, rather than directly to final consumers, when contracts with retailers cannot be observed by competitors. If retailers conjecture that identical competing manufacturers always offer identical contracts (symmetry beliefs), vertical separation by all manufacturers is an equilibrium, and it results in higher consumers' prices and manufacturers' profits. Even with private contracts, vertically separated manufacturers reduce competition by inducing less aggressive behaviour by retailers in the final market. We characterize a condition for manufacturers' profits to be higher with private than with public contracts. Our results hold both with price and with quantity competition, and do not hinge on retailers' beliefs being perfectly symmetric.
|Date of creation:||26 Apr 2010|
|Date of revision:||09 Jul 2011|
|Publication status:||Published in Economic Journal, 2012, Vol. 122, 173-207.|
|Contact details of provider:|| Postal: I-80126 Napoli|
Phone: +39 081 - 675372
Fax: +39 081 - 675372
Web page: http://www.csef.it/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Levent Koçkesen, 2007. "Unobservable Contracts as Precommitments," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 31(3), pages 539-552, June.
- Rey, Patrick & Vergé, Thibaud, 2003.
"Bilateral Control with Vertical Contracts,"
IDEI Working Papers
202, Institut d'Économie Industrielle (IDEI), Toulouse.
- Patrick Rey & Thibaud Vergé, 2003. "Bilateral Control with Vertical Contracts," Industrial Organization 0309005, EconWPA.
- Patrick Rey & Thibaud Verge, 2002. "Bilateral Control with Vertical Contracts," The Centre for Market and Public Organisation 02/048, Department of Economics, University of Bristol, UK.
- Michael L. Katz, 1991.
"Game-Playing Agents: Unobservable Contracts as Precommitments,"
RAND Journal of Economics,
The RAND Corporation, vol. 22(3), pages 307-328, Autumn.
- Michael L. Katz., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Economics Working Papers 91-172, University of California at Berkeley.
- Katz, Michael L., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Department of Economics, Working Paper Series qt79b870w0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Caillaud, Bernard & Rey, Patrick, 1995.
"Strategic aspects of vertical delegation,"
European Economic Review,
Elsevier, vol. 39(3-4), pages 421-431, April.
- Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
- Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
- Caillaud, Bernard & Jullien, B & Picard, P, 1995.
"Competing Vertical Structures: Precommitment and Renegotiation,"
Econometric Society, vol. 63(3), pages 621-46, May.
- Caillaud Bernard & Jullien Bruno & Picard Pierre, 1991. "Competing vertical structures : precommitment and renegotiation," CEPREMAP Working Papers (Couverture Orange) 9125, CEPREMAP.
- Lafontaine, Francine & Slade, Margaret E, 1997.
"Retail Contracting: Theory and Practice,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 45(1), pages 1-25, March.
- Anne T. Coughlan & Birger Wernerfelt, 1989. "On Credible Delegation by Oligopolists: A Discussion of Distribution Channel Management," Management Science, INFORMS, vol. 35(2), pages 226-239, February.
- Laffont, Jean-Jacques & Martimort, David, 1998.
"Mechanism Design with Collusion and Correlation,"
IDEI Working Papers
81, Institut d'Économie Industrielle (IDEI), Toulouse.
- Daniel P. O'Brien & Greg Shaffer, 1992. "Vertical Control with Bilateral Contracts," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 299-308, Autumn.
- Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
- Patrick Rey & Joseph Stiglitz, 1995.
"The Role of Exclusive Territories in Producers' Competition,"
RAND Journal of Economics,
The RAND Corporation, vol. 26(3), pages 431-451, Autumn.
- Patrick Rey & Joseph Stiglitz, 1994. "The Role of Exclusive Territories in Producers' Competition," NBER Working Papers 4618, National Bureau of Economic Research, Inc.
- McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March.
- Jacques Cremer & Michael H. Riordan, 1987. "On Governing Multilateral Transactions with Bilateral Contracts," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 436-451, Autumn.
- Fershtman, Chaim & Judd, Kenneth L, 1987.
"Equilibrium Incentives in Oligopoly,"
American Economic Review,
American Economic Association, vol. 77(5), pages 927-40, December.
- Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414.
- Horn, H. & Wolinsky, A., 1988.
"Bilateral Monopolies And Incentives For Merger,"
410, Stockholm - International Economic Studies.
- Lucy White, 2007. "Foreclosure with Incomplete Information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(2), pages 507-535, 06.
- Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
- Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
When requesting a correction, please mention this item's handle: RePEc:sef:csefwp:251. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lia Ambrosio)
If references are entirely missing, you can add them using this form.