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 how the interplay between the manufacturer's incentive to limit retail competition and the presence of asymmetric information shapes the optimal size of the distribution network. We show that a larger distribution network reduces retailers' information rents, and this may induce the manufacturer to choose a number of retailers that exceeds the socially optimal one. We also determine how the manufacturer's technology and the characteristics of demand affect the optimal network size.

(2021). Vertical contracting with endogenous market structure [journal article - articolo]. In JOURNAL OF ECONOMIC THEORY. Retrieved from http://hdl.handle.net/10446/228191

Vertical contracting with endogenous market structure

Pagnozzi, Marco;Piccolo, Salvatore;Reisinger, Markus
2021

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 how the interplay between the manufacturer's incentive to limit retail competition and the presence of asymmetric information shapes the optimal size of the distribution network. We show that a larger distribution network reduces retailers' information rents, and this may induce the manufacturer to choose a number of retailers that exceeds the socially optimal one. We also determine how the manufacturer's technology and the characteristics of demand affect the optimal network size.
articolo
Pagnozzi, Marco; Piccolo, Salvatore; Reisinger, Markus
(2021). Vertical contracting with endogenous market structure [journal article - articolo]. In JOURNAL OF ECONOMIC THEORY. Retrieved from http://hdl.handle.net/10446/228191
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10446/228191
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