The Value of Interlocking Directorates in Vertical Contracting

Maria Rosa Battaggion, Vittoria Cerasi and Gulen Karakoc

No 480, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: This study analyzes the choice to interlock between two competing companies when their privately known marginal costs are correlated. The two rivals are organized into different business models: one delegates its production to a subcontractor, while the other is vertically integrated and carries its production in-house. By accepting the interlock, the hosting company discloses its marginal cost to the rival. The two companies decide ex-ante whether to commit to interlock. In a Perfect Bayesian Equilibrium, the vertically separated company gains more from interlocking than the rival because it saves on internal agency costs and gains market power, otherwise unbalanced toward the competitor. Interestingly, we show the following: for high cost correlation allowing a unilateral interlock benefits consumers. Hence, our results provide reasons for approving horizontal interlocking in markets where companies have asymmetric business models, and the interlocking company outsources its production.

Keywords: Interlocking directorates; Agency costs; Vertical hierarchy. (search for similar items in EconPapers)
JEL-codes: D43 D82 D83 L2 (search for similar items in EconPapers)
Pages: 19
Date: 2021-09, Revised 2021-09
New Economics Papers: this item is included in nep-com, nep-cta, nep-isf and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://repec.dems.unimib.it/repec/pdf/mibwpaper480.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:480

Access Statistics for this paper

More papers in Working Papers from University of Milano-Bicocca, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Matteo Pelagatti ().