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.
Vertical Contracting with Endogenous Market Structure / Pagnozzi, Marco; Piccolo, Salvatore; Reisinger, Markus. - In: JOURNAL OF ECONOMIC THEORY. - ISSN 0022-0531. - 196:C(2021), pp. 1-27. [10.1016/j.jet.2021.105288]
Vertical Contracting with Endogenous Market Structure
Marco Pagnozzi;
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.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.