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http://hdl.handle.net/10419/45615
  
Title:Quality distortions in vertical relations PDF Logo
Authors:Baake, Pio
von Schlippenbach, Vanessa
Issue Date:2011
Series/Report no.:DICE discussion paper 18
Abstract:This paper examines how delivery tariffs and private quality standards are determined in vertical relations that are subject to asymmetric information. We consider an infinitely repeated game where an upstream firm sells a product to a downstream firm. In each period, the firms negotiate a delivery contract comprising the quality of the good as well as a nonlinear tariff. Assuming asymmetric information about the actual quality of the product and focusing on incentive compatible contracts, we show that from the firms' perspective delivery contracts lead to more efficient contracts and thus higher overall profits the lower the firms' outside options, i.e. the higher their mutual dependency. Buyer power driven by a reduced outside option of the upstream firm enhances the efficiency of vertical relations, while buyer power due to an improved outside option of the downstream firm implies less effcient outcomes.
Subjects:Quality Uncertainty
Private Standards
Vertical Relations
Buyer Power
JEL:D82
L14
L15
ISBN:978-3-86304-017-8
Document Type:Working Paper
Appears in Collections:DICE Discussion Paper, Düsseldorf Institute for Competition Economics (DICE)
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