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Monitoring decisions in vertical integration

Sonia Di Giannatale, Itza T. Q. Curiel-Cabral () and Jacqueline Chacón ()
Additional contact information
Itza T. Q. Curiel-Cabral: CIDE
Jacqueline Chacón: Global Econ.

Economia e Politica Industriale: Journal of Industrial and Business Economics, 2021, vol. 48, issue 3, No 6, 462 pages

Abstract: Abstract We propose a model where the manufacturer makes two main decisions: whether or not to monitor the retailer, and whether or not to vertically integrate with the retailer in a context in which the retailer has private information about the project’s outcomes, and both the manufacturer and the retailer have private information about their respective actions. From a theoretical perspective, this model contributes to the design of proper incentives for truthful revelation of private information and implementation of optimal effort levels. As a result, we obtain some predictions which are potentially relevant to the empirical literature of vertical integration that revolve around a novel theoretical result in which we find conditions under which vertically integrated firms might undertake monitoring activities.

Keywords: Vertical integration; Hidden information; Hidden action (search for similar items in EconPapers)
JEL-codes: D80 L20 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s40812-021-00189-8

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