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Vertical Restraints Under Asymmetric Information: On the Role of Participation Constraints

23 Pages Posted: 14 Jul 2008  

Antonio Acconcia

University of Naples Federico II - Department of Economics

Riccardo Martina

affiliation not provided to SSRN

Abstract

The impact on vertical contracting of a type-dependent reservation utility is investigated within a sequential monopolies environment with asymmetric information. The welfare and private properties of contracts controlling both the retail price and the sales level are compared with those restricting only sales. When firms choose contracts non-cooperatively, retail price restrictions are desirable for the upstream supplier although detrimental to consumers, whenever the retailer reservation utility has a relevant impact on optimal contracts. If this impact is relatively weak and contracts are chosen cooperatively, vertical price control fails to maximize firms' joint-profit although it would be beneficial to consumers.

Suggested Citation

Acconcia, Antonio and Martina, Riccardo, Vertical Restraints Under Asymmetric Information: On the Role of Participation Constraints. The Journal of Industrial Economics, Vol. 56, Issue 2, pp. 379-401, June 2008. Available at SSRN: https://ssrn.com/abstract=1158754 or http://dx.doi.org/10.1111/j.1467-6451.2008.00345.x

Antonio Acconcia (Contact Author)

University of Naples Federico II - Department of Economics ( email )

Via Cintia Monte S. Angelo
Napoli, 80126
Italy

RICCARDO MARTINA

affiliation not provided to SSRN

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