American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
The Strategic Value of Quantity Forcing Contracts
American Economic Journal: Microeconomics
vol. 2,
no. 1, February 2010
(pp. 204–29)
Abstract
We explore the strategic value of quantity forcing contracts in a manufacturer-retailer environment under both adverse selection and moral hazard. Manufacturers dealing with (exclusive) competing retailers may prefer to leave contracts silent on retail prices, whenever other aspects of the retailers' activity remain nonverifiable. Two effects are at play when moving from retail price maintenance to quantity forcing. First, restricting screening possibilities may increase retailers' rent. Second, such a restriction affects downstream competition. This latter effect may justify using quantity forcing contracts and, more generally, shed light on a novel source of contractual incompleteness. (JEL D82, D86, L14)Citation
Martimort, David, and Salvatore Piccolo. 2010. "The Strategic Value of Quantity Forcing Contracts." American Economic Journal: Microeconomics, 2 (1): 204–29. DOI: 10.1257/mic.2.1.204JEL Classification
- D82 Asymmetric and Private Information
- D86 Economics of Contract: Theory
- L14 Transactional Relationships; Contracts and Reputation; Networks
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