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.

We study a model where an endogenous number of competing manufacturers located around a circle contract with exclusive retailers who are privately informed about their costs. The number of brands in the market (determined by the manufacturerszero pro…t condition) depends on the presence of asymmetric information and on the types of contracts between manufacturers and retailers. With two-part tari¤s, wholesale prices fully reect retailers costs; with linear contracts, wholesale prices are constant and independent of retailerscosts. The number of brands is lower (resp. higher) with asymmetric information than with com-plete information when contracts are linear (resp. with two-part tari¤s). Moreover, although the number of brands is always higher with linear contracts than with two-part tari¤s, joint pro ts of manufacturers and retailers are higher with linear prices. We also discuss manu-facturersincentives to choose di¤erent contract forms and analyze the e¤ects of endogenous entry on welfare.

Die ZBW räumt Ihnen als Nutzerin/Nutzer das unentgeltliche, räumlich unbeschränkte und zeitlich auf die Dauer des Schutzrechts beschränkte einfache Recht ein, das ausgewählte Werk im Rahmen der unter

We examine which form of production a manufacturer chooses between in-house produc-tion and outsourcing, when the manufacturer is faced with cost uncertainty and competes with a rival firm in a differentiated-good market. In in-house production, although the man-ufacturer can directly control the production activities with no information rent, the direct control of production brings intense competition. In outsourcing, although the manufacturer incurs the cost of the information rent, the indirect control of production may mitigate com-petition. We show that regardless of whether the goods are substitutes or complements, and whether the competition is made in either Cournot or Bertrand fashion, the manufacturer always prefers in-house production to outsourcing.