Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/94120
Authors: 
Fiocco, Raffaele
Year of Publication: 
2014
Series/Report no.: 
SFB/TR 15 Discussion Paper 455
Abstract: 
We investigate the incentive for partial vertical integration, namely, partial ownership agreements between manufacturers and retailers, when the retailers are privately informed about their production costs and engage in differentiated good price competition. Partial vertical integration entails an 'information vertical effect': the partial misalignment of profit objectives within a partially integrated manufacturer-retailer hierarchy involves costs from asymmetric information that reduce the hierarchy's profitability. This translates into an opposite 'competition horizontal effect': the partially integrated hierarchy commits to a higher retail price than under full integration, which strategically relaxes competition. The equilibrium degree of vertical integration trades off the benefits of softer competition against the informational costs.
Subjects: 
asymmetric information
partial vertical integration
product differentiation
vertical mergers
vertical restraints
JEL: 
D82
L13
L42
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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