Vertical Restraints under Asymmetric Information: On the Role of Participation Constraints

Antonio Acconcia, Riccardo Martina and Salvatore Piccolo ()

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We study a manufacturer-retailer relationship where, besides the adverse selection and moral hazard components, it is explicitly considered a type-dependent participation constraint capturing the shadow cost of exclusive dealings. The welfare effects of contracts based on both retail price and sales are compared to those of contracts contingent solely upon sales. When the type-dependent outside option severely aspects the agency problem and contracts are set non-cooperatively, retail price restrictions may be detrimental to consumers. At the same time, if contracts are set cooperatively, we show that whenever sales-based contracts are observed they are detrimental to consumers.

Keywords: asymmetric information; countervailing incentive; double marginalization; resale price maintenance; vertical restraint; welfare (search for similar items in EconPapers)
JEL-codes: D82 L4 L42 (search for similar items in EconPapers)
Date: 2005-07-01, Revised 2007-01-01
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Citations: View citations in EconPapers (2)

Published in Journal of Industrial Economics, 2008, Volume LVI, June, No. 2, pages 379-401

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Related works:
Journal Article: VERTICAL RESTRAINTS UNDER ASYMMETRIC INFORMATION: ON THE ROLE OF PARTICIPATION CONSTRAINTS* (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:141

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