We thank Mark Bagnoli, Tim Baldenius, John Fellingham, Hans Frimor, Jon Glover, Richard Lambert, Pierre Liang, Thomas Pfeiffer, Jennifer Reinganum (editor), Doug Schroeder, Jack Stecher, Susan Watts, Richard Young, workshop participants at Carnegie Mellon University, Columbia University, and Purdue University, and especially two anonymous referees for helpful comments. Arya gratefully acknowledges assistance from the John J. Gerlach Chair.
Disclosure standards for vertical contracts
Article first published online: 12 SEP 2011
© 2011, RAND.
The RAND Journal of Economics
Volume 42, Issue 3, pages 595–617, Fall 2011
How to Cite
Arya, A. and Mittendorf, B. (2011), Disclosure standards for vertical contracts. The RAND Journal of Economics, 42: 595–617. doi: 10.1111/j.1756-2171.2011.00145.x
- Issue published online: 12 SEP 2011
- Article first published online: 12 SEP 2011
In this article, we investigate the welfare consequences of disclosure of vertical contracts. When much of retail competition is among products provided by a dominant supplier, disclosure provides a means through which the supplier can use its prices to coordinate the retail behavior of its wholesale customers. From the retail consumers' perspective, such coordination is unwanted, leading them to favor opacity of contracts. When retail competition is across brands made by different suppliers, disclosure becomes a conduit through which suppliers compete indirectly via their retail surrogates. Consumers welcome the increased competition accompanying such disclosures. In short, the efficacy of disclosure standards depends critically on the suppliers’ market reach and the relative intensity of intrabrand versus interbrand retail competition.