Product market competition and boundaries of the firm

Jean-Etienne de Bettignies

Canadian Journal of Economics, 2006, vol. 39, issue 3, 948-970

Abstract: This paper studies the effects of product market competition on firm boundaries. In a duopoly setting, each retailer is associated with a manufacturer who must decide how to allocate property rights over a retail asset. Delegating property rights over the retail asset to an indepedent retailer (`disintegration') transfers incentives from the manufacturer to the retailer and has the benefit of increasing product quality and profits, owing to the retailer's superior efficiency. However, it also forces the manufacturer to forfeit part of the profits. Competition increases the net benefit from delegation and leads to more efficient, vertically disintegrated structures.

JEL-codes: L13 L14 L22 (search for similar items in EconPapers)
Date: 2006
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Journal Article: Product market competition and boundaries of the firm (2006)
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