"When Should Manufacturers Want Fair Trade?": New Insights from Asymmetric Information

Jakub Kastl, David Martimort and Salvatore Piccolo ()

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

Abstract: We study a specific model of competing manufacturer-retailer pairs where adverse selection and moral hazard are coupled with non-market externalities at the downstream level. In this simple framework we show that a “laissez- faire" approach towards vertical price control might harm consumers as long as privately informed retailers impose non-market externalities on each other. Giving manufacturers freedom to control retail prices harms consumers when retailers impose positive non-market externalities on each other, and the converse is true otherwise. Moreover, in contrast to previous work, we show that, in these instances, consumers' and suppliers' preferences over contractual choices are not necessarily aligned.

Keywords: Competing hierarchies; resale price maintenance; retail externalities (search for similar items in EconPapers)
JEL-codes: D2 D23 D82 K21 (search for similar items in EconPapers)
Date: 2009-03-12, Revised 2010-04-08
New Economics Papers: this item is included in nep-com, nep-cta and nep-hpe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in Journal of Economics & Management Strategy, 2011, Vol. 20, 649-677.

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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:218

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