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Disclosure standards for vertical contracts

Authors


  • 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.

Abstract

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.

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