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Vertical contracting with endogenous market structure

Marco Pagnozzi (), Salvatore Piccolo and Markus Reisinger

Journal of Economic Theory, 2021, vol. 196, issue C

Abstract: We analyze vertical contracting between a manufacturer and retailers who have correlated private information. The manufacturer chooses the number of retailers and secretly contracts with each of them. We highlight how the interplay between the manufacturer's incentive to limit retail competition and the presence of asymmetric information shapes the optimal size of the distribution network. We show that a larger distribution network reduces retailers' information rents, and this may induce the manufacturer to choose a number of retailers that exceeds the socially optimal one. We also determine how the manufacturer's technology and the characteristics of demand affect the optimal network size.

Keywords: Asymmetric information; Distribution network; Opportunism; Retail market structure; Vertical contracting (search for similar items in EconPapers)
JEL-codes: D43 L11 L42 L81 (search for similar items in EconPapers)
Date: 2021
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Related works:
Working Paper: Vertical Contracting with Endogenous Market Structure (2020) Downloads
Working Paper: Vertical Contracting with Endogenous Market Structure (2019) Downloads
Working Paper: Vertical Contracting with Endogenous Market Structure (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:196:y:2021:i:c:s0022053121001058

DOI: 10.1016/j.jet.2021.105288

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