Vertical Contracting with Endogenous Market Structure

Markus Reisinger, Marco Pagnozzi and Salvatore Piccolo ()

No 15472, CEPR Discussion Papers from Centre for Economic Policy Research

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 a new trade-off between limiting competition and reducing retailers' information rents that shapes the optimal size of the distribution network. We show how the manufacturer's technology and the characteristics of demand affect this distribution network. In contrast to previous literature, we show that the manufacturer may choose a number of retailers that exceeds the socially optimal one, and that vertical integration can raise consumer welfare.

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: 2020-11
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
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Related works:
Journal Article: Vertical contracting with endogenous market structure (2021)
Working Paper: Vertical Contracting with Endogenous Market Structure (2019)
Working Paper: Vertical Contracting with Endogenous Market Structure (2018)
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