A PYMNTS Company

Competition Buzz: Vertical Integration and Managerial Contracts: Strategic Tools in Imperfect Markets

By  |  January 3, 2017

By: Flavio Jacome, Andrés Mejia Villa, Karen Mendoza Manjarres

    Get the Full Story

    Complete the form to unlock this article and enjoy unlimited free access to all PYMNTS content — no additional logins required.

    yesSubscribe to our daily newsletter, PYMNTS Today.

    By completing this form, you agree to receive marketing communications from PYMNTS and to the sharing of your information with our sponsor, if applicable, in accordance with our Privacy Policy and Terms and Conditions.

    This paper analyzes a Bertrand competition model with differentiated goods, in order to determine optimal decisions when the owners can use vertical integration and managerial contracts as strategic tools. The equilibrium results are: i) the owners always delegate control to a manager who is encouraged to be less aggressive in sales; ii) there is no vertical integration when goods are highly homogeneous. iii) social welfare is never the highest that can be achieved.

    Full Content: SSRN

    Want more news? Subscribe to CPI’s free daily newsletter for more headlines and updates on antitrust developments around the world.