 Vertical contracts in search marketsInternational Journal of Industrial Organization, 2020, vol. 70, issue C Abstract: This paper studies a simple model to underline the importance of consumer search for understanding wholesale contracts between manufacturers and retailers. The model has one manufacturer and two retailers who compete in a homogeneous goods market where the wholesale contract is unobserved by consumers. If the manufacturer is in the position to offer two-part tariffs, the model without search either does not have an equilibrium wholesale contract (if retailers hold passive beliefs) due to the well-known opportunism problem or it is characterized by the absence of a fixed fee (when retailers hold symmetric beliefs). With consumer search, an equilibrium wholesale contract always exists (even if retailers hold passive beliefs) overcoming the opportunism problem and is always characterized by some fixed fee. If the manufacturer offers linear wholesale contracts, the differences between the models with and without consumer search are less pronounced, but remain even if the search cost vanishes. Thus, the vertical contracting literature cannot simply ignore search costs by saying that they are probably small and can therefore be neglected. Keywords: Vertical relations; Consumer search; Double marginalization (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:70:y:2020:i:c:s0167718719300499 DOI: 10.1016/j.ijindorg.2019.102527 Access Statistics for this article International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal More articles in International Journal of Industrial Organization from Elsevier |
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