Abstract
We consider a manufacturer’s incentive to sell through an independent retailer, rather than directly
to final consumers, when contracts with retailers cannot be observed by competitors. If retailers
conjecture that identical competing manufacturers always offer identical contracts (symmetric beliefs),
manufacturers choose vertical separation in equilibrium. Even with private contracts, vertically separated
manufacturers reduce competition and increase profits by inducing less aggressive behaviour
by retailers in the final market. Manufacturers profits may be higher with private than with public
contracts. Our results hold both with price and with quantity competition and do not hinge on
retailers beliefs being perfectly symmetric. We also discuss various justifications for symmetric beliefs,
including incomplete information.
Lingua originale | Inglese |
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pagine (da-a) | 173-207 |
Numero di pagine | 35 |
Rivista | Economic Journal |
Stato di pubblicazione | Pubblicato - 2011 |
Pubblicato esternamente | Sì |
Keywords
- Private Contracts
- Vertical Separation