"When should manufacturers want fair trade?": New insights from asymmetric information when supply chains compete

Jakub Kastl, David Martimort, Salvatore Piccolo

Research output: Contribution to journalArticle

4 Scopus citations

Abstract

We study a model of competing manufacturer/retailer pairs where adverse selection and moral hazard are coupled with promotional externalities at the downstream level. In contrast to earlier models mainly focusing on a bilateral monopoly setting, we show that with competing brands a'laissez-faire'approach towards vertical price control might not always promote productive efficiency. Giving manufacturers freedom to control retail prices is more likely to harm consumers when retailers impose positive promotional externalities on each other, and the converse is true otherwise. Our simple model also suggests that, with competing supply chains, consumers and manufacturers might prefer different contractual modes if promotional externalities have substantial effects on demands.

Original languageEnglish (US)
Pages (from-to)649-677
Number of pages29
JournalJournal of Economics and Management Strategy
Volume20
Issue number3
DOIs
StatePublished - Sep 1 2011
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Strategy and Management
  • Management of Technology and Innovation

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