Solving the « selective intervention » puzzle

Jacques Crémer

Revue d'économie industrielle, 2010, vol. n° 129-130, issue 1, 43-56

Abstract: This paper discusses the way in which the economic literature has solved Williamson?s selective intervention puzzle: why is that vertical integration, which gives the purchasing firm more control over its trading partner, not always more profitable than vertical separation? I argue that all the models which tackle this problem share a common feature: in the contracts which describe the relations between agents, the principal still makes decisions and acts after the contract is signed. As a consequence, the greater control provided by vertical integration can affect the principal?s ex-post behavior in ways which are ex-ante point of view detrimental to its profits.

Keywords: Selective intervention; Vertical integration; Vertical separation; contracts; principal/agent; O.E. Williamson (search for similar items in EconPapers)
Date: 2010
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