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http://ssrn.com/abstract=1574468
 
 

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Integration and Information: Markets and Hierarchies Revisited


Robert S. Gibbons


Massachusetts Institute of Technology - Sloan School and Department of Economics; National Bureau of Economic Research (NBER)

Richard Holden


University of Chicago

Michael L. Powell


Massachusetts Institute of Technology (MIT)

January 22, 2010

MIT Sloan Research Paper No. 4776-10

Abstract:     
We analyze a rational-expectations model of price formation in an intermediate-good market under uncertainty. There is a continuum of dyads, each consisting of an upstream party and downstream party. Both parties can make specific investments at private cost, and there is a machine that either party can own. As in property rights models, different ownership structures create different incentives for the parties' investments. As in rational-expectations models, some parties may invest in acquiring information, which is then incorporated into the market-clearing price by the parties' trading behaviors. The informativeness of the price mechanism affects the returns to specific investments and hence the optimal ownership structure for individual dyads; meanwhile, the ownership choices by individual dyads affect the informativeness of the price mechanism. In equilibrium the informativeness of the price mechanism can induce ex ante homogeneous dyads to choose heterogeneous ownership structures.

Number of Pages in PDF File: 34

JEL Classification: D20, D23

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Date posted: March 24, 2010  

Suggested Citation

Gibbons, Robert S. and Holden, Richard and Powell, Michael L., Integration and Information: Markets and Hierarchies Revisited (January 22, 2010). MIT Sloan Research Paper No. 4776-10. Available at SSRN: http://ssrn.com/abstract=1574468 or http://dx.doi.org/10.2139/ssrn.1574468

Contact Information

Robert S. Gibbons (Contact Author)
Massachusetts Institute of Technology - Sloan School and Department of Economics ( email )
E52-432
MIT
Cambridge, MA 02142
United States
617-253-0283 (Phone)
617-258-6855 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Richard Holden
University of Chicago ( email )
1101 East 58th Street
Chicago, IL 60637
United States
Michael L. Powell
Massachusetts Institute of Technology (MIT) ( email )
77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States
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