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Vertical Contracting with Endogenous Market Structure

Marco Pagnozzi (), Salvatore Piccolo () and Markus Reisinger ()
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Salvatore Piccolo: Università di Bergamo and CSEF, http://www.csef.it/Piccolo
Markus Reisinger: Frankfurt School of Finance & Management

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

Abstract: A manufacturer chooses the optimal retail market structure and bilaterally and secretly contracts with each (homogeneous) retailer. In a classic framework without asymmetric information, the manufacturer sells through a single exclusive retailer in order to eliminate the opportunism problem. When retailers are privately informed about their (common) marginal cost, however, the number of competing retailers also affects their information rents and the manufacturer may prefer an oligopolistic market structure. We characterize how the manufacturer’s production technology, the elasticity of final demand, and the size of the market affect the optimal number of retailers. Our results arise both with price and quantity competition, and also when retailers’ costs are imperfectly correlated.

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)
New Economics Papers: this item is included in nep-com, nep-cta, nep-ind and nep-mic
Date: 2018-09-21
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:509

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