Product Market Competition and Boundaries of the Firm

23 Pages Posted: 15 Nov 2006

Abstract

This paper studies the effects of product market competition on firm boundaries. In a duopoly setting, each retailer is associated with a manufacturer who must decide how to allocate property rights over a retail asset. Delegating property rights over the retail asset to an indepedent retailer (disintegration) transfers incentives from the manufacturer to the retailer and has the benefit of increasing product quality and profits, owing to the retailer's superior efficiency. However, it also forces the manufacturer to forfeit part of the profits. Competition increases the net benefit from delegation and leads to more efficient, vertically disintegrated structures.

Suggested Citation

de Bettignies, Jean-Etienne, Product Market Competition and Boundaries of the Firm. Canadian Journal of Economics, Vol. 39, No. 3, pp. 948-970, August 2006, Available at SSRN: https://ssrn.com/abstract=944950 or http://dx.doi.org/10.1111/j.1540-5982.2006.00377.x

Jean-Etienne De Bettignies (Contact Author)

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

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