Product market competition and boundaries of the firm

Jean-Etienne de Bettignies

Canadian Journal of Economics/Revue canadienne d'économique, 2006, vol. 39, issue 3, 948-970

Abstract: 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. Cet article étudie la concurrence sur le marché des produits et ses effets sur les limites de l'entreprise. Dans un modèle de duopole, chaque producteur, associéà un distributeur, choisit soit une structure verticale ‘intégrée’ dans laquelle le distributeur est son employé, soit une structure ‘désintégrée’ dans laquelle le distributeur est indépendant. Plus efficace en termes d'incitations au distributeur, la structure désintégrée génère des profits joints plus importants. Elle oblige cependant le producteur à partager les profits avec le distributeur. La concurrence augmente le bénéfice et réduit le coût de la désintégration, favorisant ainsi des structures verticales désintégrées et efficaces.

Date: 2006
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Citations: View citations in EconPapers (6)

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https://doi.org/10.1111/j.1540-5982.2006.00377.x

Related works:
Journal Article: Product market competition and boundaries of the firm (2006)
Working Paper: Product Market Competition and the Boundaries of the firm (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:canjec:v:39:y:2006:i:3:p:948-970

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